2018 . I have a commodity for my chart of the morning. It is not oil or copper. I also wanted to highlight gold because gold is near 1300 an ounce. It has been a stealthy rally into the end of the year. David youve got to admit it. I was doing golden 2008. David lets get headlines outside the business world. Worst doingemma its york cits fire in more than a quarter century. It went through a bronx killing 12uilding, people. The fire began on the first floor and spread it to the building within minutes. 170 firefighters were called to the scene. Is withoutgedy question historic and its magnitude. Our hearts go out to every family that lost a loved one here. Emma because the fire is under investigation. In india, at least 14 people were killed in a fire. The bamboo ceiling in the restaurant burned quickly and collapsed with people trying to escape. The police of fired case of culpable homicide against the restaurant owner. Transferea will hold a to a north korean vessel. That would amount to a violation of you and sanctions revelation came after donald trump criticized china on twitter over boards of similar infractions. Trump tweeted, caught redhanded. News 24 hours a day. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. David it is time now for our first take come were we talk about the top three stories. We are watching that flattening yield curve in the weakening dollar. Companies of figuring out how they may need to change the way they do is this under tax laws, with netflix getting more in salary. Apple has issued a rare apology, backed up by some discounts on older iphone models. We welcome laura keller and joe wiesenthal. We have a chart we are going to pull up here. It shows what happened with the yield curve, the white line. When you look at this, it looks like they are tracking one another. That has not always been the case. Is this a vote by the markets on where they think the u. S. Is headed . Joe its mixed signals. You can interpret the dollar andoff as about optimism people thinking there are so many great Investment Opportunities in the world right now, whether its bonds or emerging markets, why bother holding dollars . It has been characterized as something of a bit of a caution sign or reason to think growth and inflation wont be that robust and robust. They see the flattening yield curve, the warning sign. They dont see anything else the data that would back it up. Laura if you know if you keep hiking its going to get flatter, how do you square those two things . Joe thats going to be one of the pickles they find themselves in. If inflation picks up and the rates pickup, it will make their lives easier. Higher, if grinds the velocity is not there, thats the good question. David this is a vote of how the rest of the world is doing. We dont operate in a vacuum. We are doing ok, but the world is doing better . Laura they take into account how the other central bankers think about things as well. Its not just the u. S. We you see these changes, you thinkingentral bankers about what going on in the world. The netflix news over the last 12 hours, its a response to the tax will. This is nothing nobody picked up on. They will pay their executives more in cash rather than bonus. For the main reason, anything can be written off in terms of a stock confrontation. David if you paid salary, you can only deduct 1 million. The new tax bill says i dont care if its salary or bonus. You cant deduct it over 1 million. Alix i find this interesting. We talked about the repercussions. Its a bad thing for netflix. They have to pay their execs. Joe it makes you wonder if companies are going to try and pay their employees what they think they are worth. If they thought the employees were 5 million, they will try to pay that. You have to wonder the extent to which the tax treatment changes corporate behavior, if more reseller is guaranteed and you take fewer risks. It will be the kind of thing we dont see impact on right away. There could be some ramifications. David its fine and good to Say Corporation pays you what you are worth it they will have to pay more than they did before. In aftertax dollars, if you dont let them deduct it, it will bring down some income inequality. Point,moore to joes executives are aligned with were the company is going. Andpay the more in cash thats not something you are able to push on to corporations anymore. They will not be aligned in this longterm structure. Alix Goldman Sachs will take a hit this year. Can you walk me through that . Laura its mainly because of these earnings and deferred tax assets. Bank of america and citigroup said similar things. They decided on the last day to do it. There are some complications around bonuses. Some places were trying to take these compensation payments and pay them forward earlier if employees wanted to do that. There is some question about if this is related to this. There is a big component. The banks have been accounting where they are using it for another year. The tax structure is going to change. They are not worth as much. Alix you were right. They are writing it off this year. Worth the election is more this year than next year. There are a lot of unintended consequences. Apple, this time they are apologizing or what some had already suspected, that Software Changes compromise the performance of older iphone versions. They denied this was a chance get people to up grade. They said they would never do anything to shorten the life of any product or degrade the User Experience. The goal has been to create products that our customers love and making iphones last one is possible is an important part of that. This is an unfortunate time for them. There are questions about how gettingonexs are shipped. Joe i am skeptical. Remember the Nintendo Games . They did not pick up and receptions. Remember the that iphone saying it in which people kept them in their pockets. That happened to me. These things happen from time to time. It doesnt seem like anything matters. How may times of heard stories about some supplier out of asia saying shipments are looking good. Maybe im jaded and this is the worst thing to have happened. I dont think it really matters. Laura when you have Samsung Galaxy fun on the explosions and you have the smaller players in china and they have cheaper phones, they do have real competition. It seems difficult to make those inroads in china and thats a broader issue. David this is related to the goldman story. Lets get all of the stuff out the door when nobody is paying attention at the of the year. Laura you never want to divorce yourself from a product. In some ways you have to think about it. I probably would not have switched when this product first of happening. I would not have gotten a new phone if i didnt have to. It was because it was slower. I may have to join in on one of those lawsuits. Success were the ones. David the personal connection, the cotton bowl in texas. Plane the usc trojans ohio state. I am on your side. Big cotton bowl tonight. Laura they have a lot of problems last couple of years with all of the sanctions. It will be nice to be able to return to glory at some point in jonathan i noticed you are wearing your texas burn orange tie. In recent years when ut is a good. David we have a cotton ball with note 7 teams and it. Dido southern teams and it and it. Alix the yield curve has record lows. We will talk about this coming up. This is bloomberg. Among mover shareholders are selling a sizable stake to softbank. According to a person familiar, the transaction is a 40 billion valuation for the company. They will invest in it over at a higher valuation. The will change hands in deal. Activist investor carl icon is preventing them from purchasing bonanza creek. He owns 13. 5 . He filed a proxy urging them to ,ote against the takeover lasting the deal is overpriced. For claimsill pay that a brokerage unit harmed detail retail customers. Ratingsal markets had like buying set of sell for five years and supervisors worked off errant data. That is your Bloomberg Business flash. Alix the chart of the year, the yield curve. This is the chart on the terminal you want to be watching. What is next . Joining us is ian from london. Its good to see you. Your call for the yield curve in 2018 western mark in its going to be flat. We are getting toward the end of the cycle. That yield curve flattens. Youve got a situation where either Interest Rates go up or growth expectations start to get squeezed down here and see those rates going up. Stillhough inflation is relatively subdued. Alix what about the fed not buying his many treasuries and Foreign Investors not buying other assets as the Central Banks turn. That is the case for the steepener. Of 229have done a survey asset allocators. What people expect is the low end yield is going to go higher. You might start to see a bit of a rise in those 10 year yields. The danger is how far can they go with or you start to see bonds look attractive compared to equities. When you look it equities compared to bonds, watch out. Even at these levels, the bonds are starting to look attractive. Its hard to get those treasury yields up above 270. Expected to see the twoyear yields rising as the fed will raise rates four times. David the other phenomenon we saw was the weakening of the u. S. Dollar. We will go to a chart here. As you go forward, what do you expect from the dollar . Is it going to firm up . Young we think you are going to see some Dollar Strength in the first part of 2018. We see the rate rises. We expect them to come through much faster. We have seen eurozone activity surprises disappointing relative to the u. S. People have got to wake up to the idea that the u. S. A stronger and the eurozone is starting to this point. We see activity expectations coming down and surprises starting to decelerate in the eurozone. One of the key drivers or will be those earnings expectations for his as well. Equities as well. The strength of the euro is going to be part of the undoing of expectations. They are not going to be growing at 10 . They could be close to zero in the year ahead. Thats going to be a big change in perception on eurozone assets. Alix you are very contrarian to all of this. I want to highlight that in eurodollar. 2003. The best year since this is a function, it shows the divergent between the median forecast and the highend. The low end is 100 tend. 110. Walk me through what you forecast for eurodollar. Think the key thing to the eurozone and the eurodollar is that chart you have in front of pathrobably tells you the over the next three years. Which is going to hit first . We think youre more likely to see the euro come back down toward 150 or even 110 in the next six months as people get surprised by the slowdown in Economic Activity potentially and the inability to raise rates as rapidly as the United States, even though we get more inflation in the eurozone. As we go into the second half of 2018, we believe we will see longerterm the dollar a weaker currency. If america wants to have america first, the best way to do that is to evaluate against the rest of the world. 130 is a reasonable target. David ian harnett, thank you so much. He will be staying with us as we talk about stocks around the world. How much better can it get and where . We will talk about that next. This is bloomberg. David equities had a very good year as you can see in this chart. You can see the white up there is the and sci. The purple is europe and the yellow is the s p and the blue is russell. Still with us is ian harnett. I want to talk to about where we are going next. How much of this is currently . Dollar had a week year. In i think the currency lays a key role. We believe that in a time where you do get the dollar going up, that tends to support u. S. Equities relative to the rest of the world. I think that is one of the key things. When the dollar goes up, it drags down liquidity and that takes some froth out of the market. When we do our survey of investors, what we find is they are expecting equities to go higher and the vix to go higher. There is some really consistency there. Watch out. 2017 ishave seen in probably about as good as it gets and you will see tougher comparisons ahead for the equity markets. Watch out for the vix rising. Alix what is the strategy for that. Is it value versus growth . Is it regional . Ian some of the disruptors are still going to win. The Business Model is winning. We want to stick with things like quality. Bond yields are not going to rise that much to get value growth, you meet stronger Economic Activity and stronger yield curves. You need to see the 10 year yield break 3 . That growth, you meet environment shows value versus growth. If it doesnt break 3 , youre not going to see value stage anything more than a rally. That means small caps will fall it find it hard. David we will put up a chart that is on my terminal. The yellow line shows smallcap growth. The higher it goes, the better the smallcap grows. How do you see smallcap versus largecap in 2018 . Lets focus on the economics. The yield curve gives you a stronger guide. It that yield curve. If you believe its going to strengthen, that favors smallcap stocks worried if its deepens, you want to be in the smaller players. If you dont think the economy will sustain this rate of growth and the yields will peak, stick with the large caps. Alix good stuff. He will be sticking with us. Commodities are crushing it this year. Will it continue . 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. Cash open. Dow jones futures are up and the rally is underway as we head into the new year. European stocks are flack flat. In the currency market, you got a talk about the dollar index down. 3 , having a terrible year. Eurodollar is having its best year since 2003, sitting around a three month high. The 10 year yield goes nowhere. We had options this week. Crude is up over 60 a barrel. Its a big move again into the end of the year. David lets get an update on lets making headlines. Parliament africas failed to hold the president campbell for misusing public funds. Spent 17nd to have million to upgrade his home. He apologized and pay back some of the money. Parliament unlawfully shielded him from liability. They must draft rules governing the circumstances. Officials have been concerned that theresa may will meet macron next month as the u. K. Has trade talks with the european union. They may discuss for control between the two countries. More details will be provided closer to the time it. In pennsylvania, snowfall has enveloped the city and ice. Arctic air falls across the United States. Single digit temperatures good to stick around for another week. Three sharks were found on the shore in new england, their gills frozen. Onsident trump is weighed in twitter. Aboutexpressed skepticism Climate Change. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. Alix thank you so much. Sharks. David it turns out their gills are very sensitive. Alix why werent they migrating sooner . David i dont know. Alix that is a fascinating stat. One investors sitting pretty is carl icahn. Copper and gold have been on a tear. He owns a stake. This shows when he bought the stock. It was trading around your team dollars. Then he sold some of the state in 2016. He still owns a 5 stake in that. When he got in it, i thought that was confusing. Activist investors in National Resources stock, i didnt think that would work out. David they traditionally have not gone into commodities. Alix not 70 that pushes for change. There was lucky wound up doing. They announced they might cut reduction or the cash they were spending. It was a big shift. David its working out in the end. Alix 2017 has left some commodities in the dust. The index is almost flat on the year. Copper is not. Take a look at what copper have done over the last year. Eight straight quarterly gains. Thats the best in almost 30 years. Traders are optimistic about greater demand. Oil has a very similar thing, retreating after the 60 level. Interesting. Joining us is the bloomberg metals reporter. Lets start with copper. How much of the rally is supply versus demand . Joe it does seem to be more on the demand side. We had so many bad years and what we are seeing us the globe is demand coming back. Its kind of a good barometer, caterpillar a few months ago in an interview said we see demand come back in brazil. That coupled with the unexpected boom they saw in china this year, you see that with machinery and connect that to construction, its a huge metal used in construction, the demand is not just the United States. Its coming from europe. You see it in brazil. A different with supply situation of which they are coming back, there is a discussion of lower or great. Grades. David thats what i was going to ask about. China shut down there biggest producer because of pollution concerns. Joe the way it could be perceived right now is copper, which had not been affected by controls, we had seen it in aluminum and steel, maybe this is just going to be one industry or another, they will get around to everybody. Youve got to hold production for at least a week. Alix you have a more pessimistic view of equities. How do you square that with the copper rally . Its not just the supply side, but the demand. We believe the rise we have seen is linked into that chinese demand stimulus. That is across the world. Into worried that as we go 2018, we will see china activity slowing back toward 6 . That is going to take the edge off copper and gold as well. Bit, the dollar weakness you spoke about earlier reverses and that kills commodities. Alix if you look at the tct chart, once the producer pays a smelter, they are falling. That signals a tighter supply. That is an indicator in 2018. What we always hear is love about supply at the top of the cycle in the bottom of the cycle. There is still a lot of liquidity and demand comes through. What we really need to see for equities and the people who expect to see treasury yields go high, they need to see these Commodity Prices start to accelerate. In the past, when youve seen oil outperforming old, that has been a bearish signal for global activity. Im not so sure this is a bullish environment. That flat picture you showed of the bloomberg commodity indices, this is not a generous picture. David thank you both very much for being with us today. Toing up, new rules are set take place in 2018. We will talk about the winners and losers next. If you are commuting in, tune into our colleagues over on the radio. Bloomberg surveillance can be heard in new york, boston, the bay area, and across United States on xm radio. This is bloomberg. Emma this is the enterprise green room. Coming up, the head of m a. This is bloomberg. Your business flash. Apple has apologized customers Software Changes that reduced performance of older iphones to prevent unexpected shutdowns. They had not set up to shorten the life of the product. The customer complaints, or cutting the price of replacing batteries for handsets longer under warranty. Indias richest man is bailing out a wireless carrier. Companybuy the wireless and it will give him control. He will provide a cash infusion that will be used to stave off insolvency. This is a long saga. Airbus is ending the year on a high note. They announced they will sell some to china. That move comes on the heels of the biggest order of 470 planes. Bybus has been hampered sluggish sales of their jumbo jets and the shake up in top management. Is your Bloomberg Business flash. David we cover three things wall street is buzzing about. First, the long awaited set of new rules that will click in. Uber has a plan to sell a lot of its soft to softbank with possible ramifications for a possible ipo. Package a refinancing from blackstone it. Thats little rivalry there on wall street. Thanks for coming back to read its good of you to return. This is your favorite subject. These are obscure regulations. There are going to be a lot of changes. These are some essential winners and losers. Some of these are obvious. Research people are going to have a tough time. Your pension fund is going to have more transparency. Big Money Managers are winners because they can negotiate lower research fees. Theres a lot of reporting going on. This is going to take effect january third. This is a huge switch over. You would think they would take the long weekend to get it up and running. Joe we were talking about this at the break. Y2k had tons of hype about our all the lights going to turn off . They didnt. I do feel sorry for the people who are going to have to be scrambling over the coming days over the to make sure everything goes smoothly for the system. Some things are going to go wrong. It is so complicated. Theyve got to do it fairly quickly. Dont worry about it. We wont require you to know everything, as long as you show your done every thing possible to comply. Wow. Thats a standard. Alix how do you measure that . Im interested in the losers like we talk about tax reform. Its the small companies. They are going to have less coverage. How do they survive when they dont have coverage . Us. I am worried about they are going to send everything at because they want to get it for free. Joe we will expose their stuff because otherwise they wouldnt. Alix we are huge research nerds. David this is just like y2k. Wednesday morning it, we will come in and find out if you are right or not. The second story getting wall street and in Silicon Valley is the soft tank investment in mover that went through yesterday. The pick up of 50 of the Ridesharing Company, he did a nice discount. This is an important story. It may take away for eventual ipo. There are a lot of private Equity Companies that have been in the stock. Investors say they need their money back. Joe we talk about how it was a down round area the actual story for most people is the insane gains here anybody who brought anything is sitting on some of the most incredible gains for private equity or private investment in history. Thats pretty impressive. Im adjusted what he pushes for. Will be a target . There is some credibility to be gained by having him in your company when he comes out in his supporting the new ceo. Thats going to mean something. Joe one of the questions i have about uber, we know about them losing money, in the Business Model, how sound is it . Its coming down a little bit. This latest investment round resumable he is for a look at the books and the understanding of it. Worth 70 billion, still huge company. David it may be worth more in his hands. He is already invested in some leading Ridesharing Companies in india and china. If he could bring some of this together, we can have a global Ridesharing Company worth quite a bit. Joe its nice if you can get in the airport in another city and you have totogether, we can havl ridesharing download and out. Why do you need . That global skill is a key part of that. Isx the other story blackstone versus Goldman Sachs. They are a homebuilder based in new jersey. Its been destroyed in terms of that. Debt and it has been pummeled in the market. You had blackstone and you have goldman coming in and saying this is how we want you to operate, this is what we want you to do. Both anion was in the middle. Particularly in the credit market, blackstone wound up winning the battle, but on a contingency would provide alone. They must pay down their credit default, which goldman could be on the hook for. This is like the brady bunch gone bad. Joe this story took me 10 times to read to understand it. Essentially, they got a financing officers it offer that was sweeter than anything they could get on the contingency. It makes you wonder, there are a lot of stories about the decline of the single name market. Gamed, the stock is up, its not that great. Risecompany that is on the isnt on the brink of an economic default could cause a trigger, who wants to play in this market . Excellent point. These are some of the movers we are watching. Alix this the final trading day of the year. Apple starts off flat on the day. They apologize for slow phones. Many individuals were angered. You can buy a battery for half off. Both of those stocks are up in premarkets. They were in upgrade over jpmorgan. Novos price target is above its last sale. Thats interesting. Jpmorgan likes the oral diabetes drug. While the slowdown for the company is there, they like the diabetes drug. This is an interesting story. The biggest donor is carl icahn. He did not want them to buy bonanza creek. They are not buying. They have to pay some charges for that. Carl icahn is in Natural Resources with deals working up. David hes having a good day. Coming up, why the decline in ratings could mean a touchdown in 2018. Alix check out tv , interact with us directly. You can scroll through and ask us question. This is bloomberg. David this will not surprise you, its for all football. The College Championship will be decided on monday. This is been a big one for the business of all, from boosters losing their tax breaks to declining ratings in the nfl. We saw big increase the people watching nba games over the nfl game. The numbers are a little bit disturbing. This is against last christmas. The trend seems to be the nbas doing better than the nfl. I talked to Roger Goodell about once happening with the ratings. He said its a shift in the way people are watching sports. The big issue is the changing media landscape in the pace is so rapid. We believe in the Network Television model. Its appealing to the broadest audience. Most will tell you the vast majority of viewership will continue on television. Theres no question there is a shift going on. Theres the controversy about kneeling or the national anthem. Viewership should have gone up because of that . There was so much, about it. Onid what he said depends where you were. More rural viewers went down, more urban viewers went up. Younger viewers came in older viewers left he thinks because of the kneeling. The president when after Roger Goodell personally, talking about how bad it was. He tweeted repeatedly about it. Here is one of them. He tweeted about this repeatedly. Get between. Not the ones that he said it congratulating the patriots, those once a got retweeted. Tweetsd not like these as much. That is when the got retweeted. I just find it really interesting. I wonder how that lines up playing out next year. Viewership is down. There is no doubt about it. Certainly, i think Roger Goodell did not want this kind of attention. Alix they want the good attention. Dont politics in the nfl mix so well. Here we are in, the markets, the last trading day of the year. We see some of died in upside in equity futures. European stocks are flat. We see some of diedif you changa little bit, process and is the story of weaker dollar. Its a terrible year. The euro is having its best year. Forecasters are very split for that currency. The 10 year yields go nowhere. The curve is steeper and crude is up. 3 . 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 s p 3000, a growing halt for 2018 as the yield curve flattens and the dollar is weak er. President trump gears up for his second year in office with a jampacked agenda. Infrastructure, Regulatory Reform and a looming Government Shutdown. Trillion. Ined 3 look at what to expect in 2018. David welcome to bloomberg daybreak this friday. I am david westin with alix steel. Not sure how much trading will go on. Alix all those five people, here is where we stack up in the u. S. Futures up by nine points. Eurodollar climbing at a threemonth high at 1. 1995. The best year since 2003. The 10 year yield goes nowhere. The trend has been flat over the last few weeks since the end of the year. 2018 . W can we go in crude getting a nice boost, over 60 a barrel. What about opec . All of that later in the show. And the chart of the morning is gold. A stonet up, 1298 throw away from 1300 an ounce. It has been a sharp rise. Even though there has been no drama, what does that say about the fed hiking path . David i am baffled. It is not a risky. It is not a risky. It it is not a risky period. Alix it is an interesting asset class. Carol that is, lets find out what is making headlines. Emma chandra has first word news. Emma it is being called new york citys worst fire in more than a century. It killed 12 people, including several children. The fire broke out on the first floor of the fivestory structure and spread within minutes. Around 175 firefighters were called to the scene. This tragedy is without question historic and its and our hearts go out to every family that lost a loved one and everyone fighting for their lives. Emma the cause is under investigation. Meanwhile, in india, a fire at an upscale restaurant has killed 15 and injured dozens more. Quickly andy burned collapsed as people try to escape. A case of probable homicide against the restaurant manager and no arrests have been made very a russian Spokesman Says a failure to restore ties to the u. S. Is a disappointment, calling it antirussian hysteria in washington. Claimed the kremlin still hopes to improve its relationship with the u. S. But added it takes two to tango. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. David thanks. It is the big flat in there, yield spreads flattner. Meanwhile, the fed is expecting to raise rates three times next year. Joining us with maurice ira jersey. He is the chief rates strategist and in the u. S. , matthew boesler. Thank you. Give us a sense of what will happen next year by telling us what are the factors that are driving the yield curve flatters and are they likely to continue . Good morning. I think theres one thing only and that is the fed and the fed hiking. This is not unusual when the Federal Reserve takes out monetary accommodation and hikes Interest Rates, curves flattened. The reason is the long end of the yield curve, 10 year notes and 30 year bonds, tend not to move much in anticipation that growth and inflation will be lower in the future then today. Whereas twoyear notes, the front end, are about monetary policy. Yields will move higher there, just as the fed hikes rates. David how did this get together . Normally, the fed will hike because they think inflation is coming and the yield of the curve doesnt. Is the ecb sitting in that long end of the curve . Ira may be a little bit the ecb but i think that trade is mostly done. In january, they are reducing their purchases of european bonds. This is about future expectations. If the Federal Reserve was going to be behind the curve and inflation was going to spite, and the in plane expectations by the markets was the fed will never hike enough to stop inflation, then you would see a significant steepening in the yield curve, so you have 10 year yields going higher. That isnt the case. Everyone thinks the Federal Reserve is not behind the curve. There either right to a they supposed to be, and you get flat curves. That happens every time the fed hikes so it isnt unusual. Alix look at breakeven. They have had a nice move. That 10year breakevens around 2 and has had a nice move from 1. 4 to 1. 6. Walk me through what happened. I think earlier this year, there was a lot of concern about was this low inflation think something that would he more of a permanent feature of the landscape . People at the fed are trying to grapple with that. Worried aboutless Downside Risk inflation now than earlier in the year. Especially with the global backdrop improving, Strong Demand in the United States, so the rally is almost at 2 . There is still they are still below that 3 level, so we are not quite back to full confidence in the inflation outlook in the markets yet. Alix i think it is interesting because if you look at the twoyear, fiveyear, and setting your actions this week, they were pretty bad. They do not want to credit risk but Duration Risk is ok but the long end. If you look at this, firstly, this is an unusual time for actions and you often get weak ones. Looking at the twoyear option and what happened this week is very telling that it is investor demand. Investor demand for twoyear notes has been plummeting over the last couple of months. I think a big reason for that is the expectation that the fed is serious about this. They want the height. Jerome powell is going to come in and we do not know his stance yet, but nonetheless, the market doesnt want to own twoyear notes now and that will continue to flatten and pressure in the frontend of the yield curve. On inflation, oil prices being up in the 50s instead of the 30s is a big reason because we have to remember inflation breakevens are based on headline inflation and not core inflation, which is what the fed focuses on. David what about the inflation . Where is it . We have looked at various measurements. The new york fed, for example, they are up to 2. 9 plus percent, up from 2. 3 . And others are similarly moving up. Is a coming the way janet yellen said it would . In the new york fed gauge you mentioned, a lot of that is based on headline and the rise in energy prices. Itis not clear that will lead to sustainable forward to push higher in inflation. The big thing is the cyclical component of inflation that allows it to trend higher throughout the business cycle, which is rental inflation in particular. We have seen leveling out there, so we have had concerns about overbuilding in multifamily residential. Vacancy rates are ticking back up a little bit, so it isnt clear shelter inflation will rise. If it does not, the overall inflation rate might have a hard time getting back to 2 . Alix hence the dilemma for the fed. I was struck by this oped yesterday but the Market Strategist and he says failing for the fed to act now would mean delaying the great unwind to inflation until inflation and asset prices are higher, year. An adjustment risk it never makes partygoers happy, but leaving it out all night can result in a far worse hangover. Probably my favorite sentence in a long time. Walk us through who is on his side . Basically, the fed. That is what they are doing. That is the strategy over the last years, saying we are going to raise rates sooner so we can raise rates lower and not raise the more quickly later on. Plots onok at the dot the terminal, it is interesting to see how this is baked into not only their projections but the market. What we have seen with the flattening yield curve is if you look at the board curve of the blue line, we are starting to see in version of the forward curve in the threeyear to fouryear out range. The dot plot also shows this. The median dot for 2020 is at 3. 06 and it comes down to 2. 75 in the long run. It is an interesting question, how do you price this . That yield curve inversion is baked into the dot plot. Carol many thanks to ira jersey and matthew boesler. Speaking of inflation alix yes,. Breaking news german inflation yes, breaking news. German inflation rose more than. Stimated, 1. 6 what is interesting, look at the dax, there was an immediate move lower on that news. 2 butation creeps up to it isnt that great, that is that for germany as the ecb will stay more handsoff for longer. At 1. 6 for the inflation rate their in germany. Coming up, a year pact of political news. What is in store for 2018 . We have got your calendar. This is bloomberg. David throughout 2017, newsrooms have been talking about how fast pace the new cycle has been, in large part because of the Trump Administration in washington. What is coming next . Year to discuss is the Director Research with Compass Point to research and trading in washington. Isaac, welcome back and happy new year. We have a lot to cover because there is a lot to address. Start at the top with what comes up first in the month of january. Sure. The calendar in january is packed. There are a number of must act items, all of which lawmakers are trying to address by the january 2019 funding deadline january 19 funding deadline. There will be debates on health Daca Dreamers with the deadline in march, and even i think a spirited conversation about Disaster Relief spending and what it should be offset that. David what do you at Compass Point inc. About the Government Shutdown in january . Is it going to happen and not . We think the odds favorite a shutdown and for two reasons. Number one, the the the of issues i went through. These are complicated, contentious, and i think it is difficult to pull together the rubiks cube in the short few weeks they will be back. The second i think is more of a driving force. It is the fact that since republicans have delivered on tax reform, my sense is Neither Party is excited to compromise. Republicans have delivered on their main legislative promise thisemocrats realize that is their main leverage point of the entire year. David have the accomplished as much as they can without the democrats . Do they democrats for a lot of good things they need to get done now . Isaac this is the big shift. You need 60 votes for a spending bill, and that is why democrats know this upcoming january fight is the most important for them. There will be another 19onciliation effort, an fy reconciliation effort that will go on in the background of all of 2018, but that will be even more difficult now that republicans only have a one seat majority in the senate. I think that democrats realized that january is their big moments, and republicans, generally speaking, recognize the fact that tax reform is all this congress is going to deliver for them. David going to that points, infrastructure, that is something both sides talk about. Could they get bipartisan support and a bill in the way the white house says they want . D. C. this is the classic conundrum, there is agreement on both sides something should happen but there is a wide gold from policy perspective on how to address it. Republicans one tax credit. Democrats want to expanding. I think it is a bridge too far to see those sites coming together. There will be a serious effort for Infrastructure Spending next year i dont see it getting across the line. David it is Election Year to boot. Thank you so much for that. Coming up, President Trump delivers a message to amazon. Why the post office should demand more from the online retailer. This is bloomberg. David Goldman Sachs has announced the new tax overhaul will slash 5 billion from its earnings this year, and it comes from the new repatriation tax. Bloomberg news is laura keller is here with the details. What do you understand at this point . Laura 5 billion charge in the Fourth Quarter as a result of all the things happening is what they are doing. There are moving pieces. The biggest is repatriation. We also have different tax assets, as well. And for goldman, we have been moving up certain kinds of compensation for certain kinds of executives into 2017 and they can use this. David something we talked about earlier that i have been noticed in the tax overhaul as they are taking away the deduction for performance bonuses over 1 million to the top executives, which i assume a couple people might be eligible for. Laura and it is something they responded to. David also, they want to take as many deductions this year as possible because of the 35 rate as opposed to 21 rate. Laura if they can shift that, they will. David we have heard from citi an jpmorgan are other banks coming down the pipes . Laura yes, we have heard from goldman, j piece, barclays, and credit suisse. That is the biggest at 20 billion dollars, with Goldman Sachs at 5 billion, and bank of america at 3 billion. David is this below the line . Does it show up in the performance . Florida it isnt performance related and has nothing to do it cash. We normally what referred to as charges and it will hurt the bottom line. It set up banks for a better 2018 because they will get that lower tax rate and benefits . So they are taking the hit this year. But next year might be pretty good. Laura yes, really shifting the problems into 2017 and then 2018 can be nice and clean. David if only they had property taxes this year. Many thanks to laura keller. Alix two Tech Companies and a trump tweet are in the news, apple, uber, and amazon. Apple issued a formal apology for upgrades that hurt the performance of iphones, six and 6s. They said they would never do anything intentionally to shorten the life of any apple product or degrade the User Experience to drive customer upgrades. Our goal has always been to create products that our and makingove iphones last as long as possible. Is this a big deal . It is. Apple slowing down older phones washey were release new ones the thought to make people buy new ones. They made a couple of tweaks that slow down older phones that had degraded batteries to avoid costly shutdowns to the phone. The problem is that apple did not communicate this message at all to people, and it fueled conspiracy theories, and now they are apologizing after the got caught. If you rewindike a few years ago, they would not have had to do this. Nobody would have cared. They would have brought their product anyway. What is different now for apple where this becomes an apple issue . One, it is becoming clear these phones are essential to our lives. There like a utility. They are like water. We expect them to be there. I think that kind of Alliance Makes people naturally suspicious and worried any time something goes wrong, and apple is the Biggest Company in the world by stock market value, and the expectations on the company like that are higher than they were when they were younger struggling company. Riders will come out and say they are not the only partner, apple, google, alibaba could all reach one trillion over the next one year to three years. David the beat goes on. Alix this is a great story, cooper is selling a stake to softbank. Softbank has two on the board, what do they do with the money and what do they want to do for uber . Hira bloomberg itself is not getting a lot of the money. Early think is buying shares from employees in some cases so that is going into the pockets of capital firms and some of ubers early investors and employees and not the company. Although, softbank has said they will spend 1 billion into uber. Alix and that is versus buying the shareholders. Hira anyway you look at this, this is a come down for cooper would a 30 rough evaluation haircut. Back so they take a step could take a step forward toward an ipo. Shira yes, the big question role, is theys have an investment almost every Ondemand Company ride company now, and can they use that leverage to start curtailing wars . F these fare will softbank encourage uber to retreat from some countries to retreat from fare wars the become a real is this sustained on its own profit . Alix does that mean they will be a buyer or take a target . Shira it is hard to imagine uber can be sold at the valuation it has now. I believe this will be a Public Company in a few years and i think the only question is how big is it going to be . David we will wrap this up with amazon because it ties it together. One of the questions is in the one trillion, what do regulators do . The president of the United States has come out with a tweet asking, why is the United States post office, charging so little to amazon, making amazon richer . They should be charging much more. Amazon, you are getting a free ride off of the post office and you have to pay more money. What is coming around the bend from european regulators and even in asia . Ship . First, do the even they do. It is definitely true. David but it is a larger point. The government is saying, you are growing fast on our backs. Thea i think this has been theme of the year, basically the growing attention and scrutiny on the Technology Companies and their products. We saw that in congress with some of the hearings about misinformation spread, russian propaganda spread on facebook, google and twitter during the election campaign, and we have seen it from donald trump with a particular itch about amazon and jeff bezos, who also owns the washington post, which writes things the president doesnt always like. Alix will tech also be at the bank for d. C. . If you want to keep personal tax cuts, you go after those guys. David sounds exciting array be a. [laughter] alix they will not get jail though. Up next, the big risk for the u. S. Shale production, as all as what it means for Big Oil Companies. This is bloomberg. Alix happy new year. Here is what we stand with futures, s p grinding higher around the highs of the session as the end with the bang. Looking at the currency market, eurodollar up around 1. 19, having a killer year at a high. The dollar index continues to hurt, a brutal year per dollar index. Yields remain unchanged and the curve is slightly steeper today but flatter has been the theme and crude up by. 3. David lets find out what is outside the business world. Emma chandra has first word news. Recordn pennsylvania, breaking snowfall has enveloped the city in ice. Singledigit temperatures could stick around for at least another week. President trump chimed in on twitter, saying the u. S. Could use a little bit of that good old Global Warming that our country and other countries were going to pay trillions of dollars. To protect against he has expressed skepticism about Climate Change science. South africas top courts essay nations parliaments failed to hold president zuma accountable for misusing funds. He had spent 17 million in taxpayer money to upgrade his private home. While he apologized and pay back some of the money, the court ruled parliament unlawfully shielded him from liability. They called on them to drop rules on circumstances on which zuma can be removed from office. According to a new batch of government documents, thatcher refused to share a jet with panda. They say the london zoo asked her to get appended to the u. S. And she said that animals brought bad luck to politicians and refused. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Alix thank you. Oil prices in the u. S. Are over 60 a barrel, doubling from the low we saw in 2016. This year was about the battle between the u. S. Shale producer and opec. Who will win next year . How much will u. S. Shale production grow . Of the answer to that will come from big oil, getting back into the shale revolution. I had the pleasure of doing a deep dive into shale in my special and took a look at what happens at big oil. Oil be in u. S. Shale . Certainly, they realize it. They missed the boat and when the ship came in there at the airport. Alix the independence might have created a shale revolution and now big oil once the cash in. It is a special asset. Probably the crown jewel of the shale portfolio. Alix shale is one of the Big Oil Companies ramping up their exposure in the middle of the delaware basin. Is awesome . There is a resource density here that is attractive. It is a very thick section. You do not only get one shale, you get several. From expiration risk perspective, it provides more optionality. Shale rightwill put four wells next to each other, and this rig can actually walk, meaning it can lift itself up, move over, without pulling it apart. You can imagine, we get about 30 to 40 in efficiency increase in terms of time and money and in terms of the rate with which you can drove these wells as compared to doing oneoff wells. Alix shale reduction is slightly over 60,000 barrels of Oil Equivalent the day. At school is to increase production about 25 the year. How much does it cost to get oil out of the ground . What is your breakeven . Three years ago, 65 a barrel. Now, 40 a barrel. We have much more opportunity to improve. What we are doing in Development Mode with multioil pad drilling, we are some 30. Alix shale is spending 10 , a fraction of its budget shell is spending 10 , a fraction of its budget, on shale. It will be the largest allocation overtime. Bought upr shell shale assets and it did not go well. We were using a lot of the same standards for our offshore business. Alix big oil was criticized for paying too much at the wrong time and took billions of writedowns after the 2014 crash. We have reshaped our standards and our entire framework to enable us to be competitive in shale. We need to be as nimble as an independent but also bring the strength of in the major and those are in technology, value chain integration, and scale. Shell aren, chevron, all in u. S. Shale. To the big boys make you worry coming in . We have competed against large companies, multinationals forever and it doesnt worry me. Alix they have big pockets. They do, and a lot of times they emptied them quickly. Alix do they have the ability to operate shale like you guys . Probably not to the extent we do. I think a lot of them realize it. Some of them made attempts to departmental lies the companys departmentalize their companies and that has worked to some extent. Alix jeff curry is also skeptical. It is a very different scale. It is a very different engineering proposition. It is mark manufacturing. It is more like manufacturing. Alix big oil is critical in answering how big can shale production get . I say we are in the second inning or third inning. Alix there hasnt been a major big shale discovery since four years ago in the u. S. , and that means to keep it pumping, you have to get more oil at of existing assets. For that, you need technology. The question is, all we really are we applying all the Technology Available to the shale business . If not, what are the technologies we could apply that could change the game in the future . Alix to advance the game, shell taking ishell, technology other industries and applying it to a shale field. What am i looking at . The future of remote operation center, where we could manager and monitor more remotely as opposed to doing it in the field. You are using predictive , wherecs, edge analytics it is digitizing a lot of what we are doing out here so folks in office can sort out what is going on without having everyone in the field. Alix the futuristic person is freaking out. To technology we are thinking is evolving allows us to do more fracs for less money and were cover more from the lot. Alix the goal is to unlock the full potential of shale. 200 billionu this, barrels, we are only getting a percent to 9 . If we can increase it 1 for 2 , that is huge. Alix what kind of barrels are we talking about . 1 in the Permian Basin is one billion barrels. Alix coming up, the big risk. What could derail u. S. Shale production in the u. S. . This is an oil and gas state. But we have asked for is for those who do this to do things in a responsible way and good way. That was part of my special, the next shale revolution. You can tune into bloomberg. Com and watched the whole episode in full. In my reporting, it led me to what could derail the oil environment. At some point, it came back to electric vehicles and the peak oil demand. We talked about peak oil supply, and that has nooks which to peak oil demand. David it is fascinating because they can produce a lot more. But will we need it all . We are switching to things like electric vehicles, which will change the world. Alix and the timing is the issue. California does a lot of work on Disruptive Technologies and what it means for industries. He says by 2022, we could see oil prices at 25 a barrel because of the disruption. You have self driving, ride hailing, and electric vehicles. Do you want to spend 1000 a year on that or 10,000 for new cars every five years. David that is 2022. Lets figure out what Auto Companies think will happen. We will go to detroit to our colleague, who covers this. When you talk to Auto Companies, are they looking at the time horizon on the critical point for electric vehicles . It is a decade or more. It is a long ways down the are e horizon road before the technology can really pay for itself. There is a lot of excitement around electric vehicles from regulators, who want to reduce emissions, pollution, increase the average fuel economy of the vehicle fleet. There is a lot of excitement among investors because tesla is an Exciting Company and disruptive company, so you are seeing a lot of me to announcements from other automakers me too announcements from other automakers. They still really lose money and there are not a lot of consumers outside of tesla or people excited to buy them and there are lower fuel prices that keep pushing people into bigger vehicles and away from that demand for electric be a ghost that seemed to be growing when gas was four dollars a gallon. It is a challenge. David at the same time, you see enormous investments made by the of the worlds and they are buying companies, like gm bought in Silicon Valley, so they must expected to turn around in the future. They have to make huge investments in electric and economists and in connected vehicles and autonomous and connected vehicles. They have to make a lot of choices around brands, markets and technologies. Another big thing is there is this desire for cleaner vehicles and the additional demand is coming from on the flipside, we have tesla, but also volkswagen, which brought do soga which brought the dieselgate. Electric vehicles are fun to drive with lowend torque. David i have driven the volt and it is a lot of fun. Thanks so much from detroit. Coming up, it has been a better year for m a, with disneys maker deal with 21 century fox. And as you commute today, tune into our colleagues from 7 00 to 10 00 this morning on the radio, in for tom keene and Jonathan Ferro for the entire week. Bloomberg surveillance can be heard in new york, boston, the bay area, and across the United States on sirius xm radio. This is bloomberg. Emma this is bloomberg daybreak. Coming up later on bloomberg markets, former bank of england mpc member. This is bloomberg. Now to your Bloomberg Business flash. Ending the year on a high note. The company will sell 50 of their single air airliners to china aircraft. They are firming up their biggest ever order. Everest has been hampered by sluggish sales of their jumbo jets, as well as a shakeup in top management. Ichan filed a proxy earlier this month, urging stockholders to vote against the proposed 750 million takeover, pronouncing the deal as overpriced. Citigroup will pay 11. 5 million to resolve claims that the brokerage unit harmed customers. The financial industry regulatory industry says they were changing ratings for almost five years. They said they worked off errant data and their Research Department covered it from december 2011 to december 2015. David it is another banner year for m a. We saw disney and 21st century fox and amazon and whole foods, to name a few. This topped 3 trillion for the fourth Straight Year and many bankers say it will continue into the new year. We now welcome Robert Profusek for his perspective. Right . Y will it continue in 2018 . Robert i think 2018 might challenge 2016 in terms right . Will it continue in of activity. It has gone from ok. The first three quarters were good, but compared to prior years, not so much. Frankly, for a lot of reasons, there is relentless pressure of technology. It is a huge force in terms of , but gettingt uncertainties out of the way with the tax bill is a game changer because that i think hands things down for the first three quarters. David so there is demand, but is there discouraging factors . Theexample, interest directions. Robert in the near term, that is not an issue because some of it is the dunstable but just within a leverage ratio. That gets tighter as times goes on. That is an issue for private equity and not so much corporates. It is three times out of the leverage past, and you are there anyway. That isnt a factor. There is a pressure for Interest Rates to go up in 2018. There is the repatriation of money. There is a lower tax rates, and there will be a lot of cash sloshing around in Corporate America and private equity. Alix where will receive the most money . We can look at m a by region. The white line is the u. S. Europe is the blue bar. The yellow line is transaction value in u. S. Dollar. It has been coming off a little bit. Some rhetoric is we will not see megadeals we are used to in europe has lagged the u. S. How do see this playing out . Roberts it is hard to generalize. Is at least u. S. Half of m a, and that is what it will prove to be in the final numbers coming out now. It is probably going to be a little bit more here than in because our gdp rate is lower, so if you are more heavily weighted to europe, your growth is better and you needed to support in terms of your trading prices. That would tell you that you are going to have less going on here. Everybody thinks that asia and inbound m a, europe and the u. S. , are done a lot. It is down some. In chinese, there is a story about exchange controls, and that sort of thing, but it is still significant. There is a lot of stuff. We are in a global world, so the movement of capital back and forth and the need to position yourself a strong. David what about regulation . Talk about the at t and time warner deal, which sent a chill of peoplepine interested in m a. Robert that isnt horizontal deal. Deals that have problems are when two people in the same of people interested inbusiness combine, d do everything. Example, disney and 21st century fox, a horizontal deal. Robert what was unique about time warner is it is a vertical transaction. Wheres the competition . Convertible transaction has not been thought to be important that they are very important now. When you think of the three deals you mentioned, they are all a little bit vertical. Stock markets are accommodating that. Im not sure that would happen. To me, that is a consequence of technology. The world realizes if you stand still and all you do is more what you have been doing, you will have a problem down the road. You have got to get into it adjacent spaces. For disney, it was not the studio, it was the library. If you are going to compete with netflix, how do you do that . You have to have more content. Think about the content disney has going back 80 years of mickey mouse, but this need to step out into adjacent spaces i am not saying a frack are will buy a bakery fracker will buy a bakery, but you have to get into different spaces or the competition will blow you away. David disney is interesting because of how they plan to finance it. Most of the deals happened in with cash. People can borrow cheaply. They are doing this with stock, which is not the way most do it. Is that because he is concerned he needs to keep his balance sheets, which is already strong, upon us against possible downturn . Roberts there was never 1 robert theres number one answer. They sell stock in the market now. The world is still buying back stock, not so much as it was, but there was going to be other opportunities. For disney, i am not in that deal. I wish i were, but im not. This is not the last deal by a longshot. They will be doing more and more content focus deals. Alix what sectors are most active in the u. S. This year . Think it is technology, the change. Every industry you can think about is changing because of technology, whether the delivery mechanism, web you have a story on fracking, that is technology. Everything that is being driven by technology, so i do not i have a hard time thinking of businesses that are not going to need to change. Alix he is like, i am going to work real hard next year. Robert when you think of some retail, you will see more people in the same space combining, cutting costs, and trying to survive. Other people will make older moves. David sounds like the moves. Retail, you moves b r david coming up, saudi arabia is cracking down on production. Why they are yielding a big return. Alix check out tv , watches online and interact with us directly. Pretty cool. This is bloomberg. Alix here is what caught my eye this morning, billionaires held for ransom. Saudi arabia once 100 billion for the domestic foreign agenda and theyre getting some of it from princes. They arrested dozens of individuals and 20 have been released after paying up. But to sayhe facts, what the number is that you want, and then save this is how much you can take to get out, and when standalone is one prince with the figure of 6 billion and digging in the heels. David that deal is not getting made. I have never heard a corruption probe where the Prosecutor Says i want to get 100 billion in fines before we are done. Alix is it the purge to root out corruption . Is that what it is about or is it simply about the crown prince consolidating power and being that person in the country . David and does the country have to choose between them. Everyone knows there is corruption, but at the same time, he would like to consolidate power. Maybe he do both at the same time. The 6f he doesnt get billion, what does that say about his power and will that change the dynamic and what does it mean for the ipo . David it is a matter of sensible and not just business. Alix anyway, it is all about oil at the end of the day. Markets, on bloomberg we have a chief investment strategist. Happy new year, david. David happy new year to you. Alix fireworks. This is bloomberg. From new york city, i am alix steel. 30 minutes until the start of trading. This is the countdown to the open. Coming up, dollar downer. The greenback posting its biggest weekly drop since early september, capping off its steepest annual decline in 14 years. Isorry apple apologizing to customers for Software Changes. And bubble trouble. The best way to crush the crowd by the things everyone interested will never go up, from bitcoin to tesla. We debate the future of the socalled double portfolio. Here is where we stand. S p futures up by about eight points. Grind higher into the last trading day of the u. S. Eurodollar, the best year since 2003. A flat or curved into the year, even if you get reprieve today