Averages nasdaq s p 500 and bit igher by. 5 or a more. 2000. Out russell the optimism is back about tax cuts and what it will economy and we have the earnings season getting under way tomorrow with some of the big banks. Those in a t moment. But first, lets look at a few of the stocks that are 2000 g the russell higher. These are small cap stocks. 17 . Ress software up they beat earnings and sales estimates. Same thing with k. B. Home. They beat earnings by more than 9 . Stands out in contrast to yesterdays lennar. S miss by company, the brinks up almost 9 . These are some small cap winners. The earning season overall, lets hop bloomberg and look at the yearoveryear Earnings Growth. In 2013 and 14, ecent growth, but then we see an earnings recession 16. Here to 2015, 2017, lots of growth. 20 last year. This is the estimate for the Fourth Quarter that well be at. Ing up 11. 8 . That according to mkm. Be more reason to think why the stock market is rallying on the day and to if ontinue corporations deliver. Nd j. P. Morgan and wells down modestly. As you know for j. P. Morgan, investigators will be concerned about treating revenue. And wells fargo, fake account scandal, is that behind them . Commentary about taxes that weve heard from investigators will be concerned about companies. Lets check on bloomberg news. State Department Diplomat told a Senate Committee ations that although the u. S. Backed coalition in the middle east has liberated 7 of territory previously eld by Islamic State, the fight is not over. Countere focused on iranian influence, preventing the use of weapons, ensuring the safety of syrian the bors and deescalation of violence and resolution. That was the state departments assistant david ry of state satterfield speaking to the Senate Foreign relations committee. A centuryold draw secaucus r the transfer station. There was problems with it earlier today. More headaches for residents commuting into the city. The 108yearold bridge that 450 trains a day between new jersey and new became stuck in the pposition causing a twohour suspension in and. Ut of penn station global news, 24 hours a day, powered by more than 2,700 journalists and analysts in countries. Im Mark Crumpton. This is bloomberg. To heard you were late work because of what happened with the amtrak tunnel. Shh. Wont say more than that. I just got ratted out. No. You were a victim of it like everybody else. The whole tristate area is affected by it. Ark crumpton, ever the professional. Bill rhodes evokes the of oprah winfrey. Winfreys o speech that time is up for bond oes for the market. Gross says, its about time. Bill gross, joins us now beach, port california. Thanks for joining us. Good to speak with you. My pleasure. About this k bond bear market. You call it a bear market, but one thats not dangerous bond investors. What does that mean . Of a hink its more 35year bear market thats of coming out hibernation. Means in fundamental terms that 10year reasuries that are 2. 55 probably over the year will for a. 75 or 2. 80 number of fundamental reasons. Ut it doesnt really significantly affect total forrn in a negative way bond investors. It leaves them, in my flat. On, and you said that annual returns should be positive. Do you see the 10year and above and spilling over and hurting equities . That is certainly possible. Has nk that 10 years broken a number of technical barriers in the last few so. Or week or and the fundamentals are them. Ng against the nominal u. S. G. D. P. Is closer to 5 than 4 . Ever since beginning 2009, the spread between nominal. D. P. And 10year treasuries has been 140 basis points. F we got to 5 nominal g. D. P. , which i 35 is 3. 60 10year is possible. 3 is possible, yes. Bill, when you look at your outlook for the year of 2. 7 or whatever it may be across the yield curve, what your be optimal for investments, for your positioning right now . As i look at some of your returns, youve been lagging some peers. So i wonder what would be that wouldenario allow you to catch up a bit. Well, my unconstrained low duration or even close to money market und and returns have been very good, relative to those benchmarks. What i see as an opportunity investingessarily in treasuries and global cases but in some selling them. U. K. , yield only 1. 4 and inflation above 3. Thinking, its the beginning of a global ovement and treasuries are certainly leading the charge ith fed increases over the last five months. Other Central Banks are atching up in terms of easing quantitative easing. The e. C. B. Perhaps changing outlook on Monetary Policy going forward. Right. Ts repricing of europe, what kind of effect have on the treasury market . How does that change a Value Proposition of u. S. Debt on the short end and the long end . I think it does. For instance, over the past months, a lot of bund investors have sold at pickup of 200 basis points, and that has then making them more attractive. And lessens the buying of treasuries. That s no doubt theres a global connection yields. Of theres a large disparity between them. Move together during periods of Central Bank Tightening and were eginning to see that now almost on a global basis. Speaking of connections, scarlet alluded to, you made the oprah connection connection in your Investment Outlook thats out. And you made some jokes about men in general. You said, i could go on and on. I wont. I dont dare. To have provocative attentiongrabbing jokes at times. Im curious why you waded one. This well, because i think relevant. Cal and and it needs to be brought to the surface. In a rather comical way talking about en and some of their problems, but in a joking fashion, but at the same suggesting that women since the biblical eve, short stick he or the short rib, and it was change. Continuing i think my outlooks have lways been, yes, controversial, but also provocative from the of social change. Would you support oprah in 2020 . [laughter] like what she said. And i like how she said it, lets put it that way. She doesnt necessarily have political experience, but who knows. For a its time change. It was time for a change ever since last november was elected and obviously Hillary Clinton ould not be that future change. So lets look at some otential candidates and oprahs a strong force in terms of opinions and voicing those opinions. Oprah would certainly be a wild card in the political arena. To the bondback market as we draw these analogies, are there any wildcards this year . It seems that the landscape maxed out. Is there anything unexpected here . Matter of inflation, for example, that you are on watch for this year . I think so. He bond market is anticipating higher inflation. Higher wage gains with Walmart Raising their minimum wage. Unanticipated inflation, breakevens, 5, 10, 30 years out are 2 . The cpi tomorrow gives us a 2 is a t perhaps minimum target, then bonds could suffer going forward. Would watch the inflation outlook, not just in the ecb and maybe even in japan. And were starting to see break ak evens higher. Joininghone us from newport beach, california. Is back. , bitcoin one wall street vet says that more crackdowns are on the way. Is covered for you next. This is bloomberg. Unanticipated inflation, this is bloomberg markets. Outh korea is the latest country to mull a ban on currency trading. Bitcoin tumbled on the news now back 8 after south korea said that the ban is not finalized. All in a day. All in a day. Its like any other day bitcoin. N the u. S. , its only a matter of time before rodgin rs regulate cohen. Issues, s so many no one agency can deal with it. What are we talking about be aand why would fsoc good regulator . Financial stability council, Steve Mnuchin oversees it, but sec, cstc, cspc, a lot , and all s of onsible for a lot protection. All of the agencies should be responsible for doing it. In the re chefs kitchen. Have they said anything about bitcoin up until now . Every year, they put out its 150 pages and in the last year, had maybe one paragraph. Down. S played between the middle of december and now, something huge has changed. We reported at the end of december, that Goldman Sachs cryptoing to build a currency desk at forces the regulators hands a little bit. Banks are ready to address this, whether the regulators ready or not. And its a circle that itself. When futures trading began, legitimization to some degree. It then allow the banks to be become more involved . It does. The banks and analysts at he banks have said that regulation is a big come enter in a legitimate way. Theres a lot of risk at getting in trouble. A lot of issues volatility and losing money. And until these are sorted out, people will be hesitant to enter the market. Thank you so much. Basak talking about potential regulation of bitcoin. People use bitcoins for reasons. S of with the holidays over and done with, its time to pay or the gifts and travel expenses, and of course, theres an e. T. F. For that. You inside ipay. Paying now takes many forms, including mobile payments. Under the trades ticket ipay. Take a looke to at a consumer shift paying go. The 3 4 is in the u. S. , with pay visa and mastercard the biggest of the names. Atrantracted 250 million in assets, reaching peak as the year begins. Nvestors will have to pay up, though, 75 basis points. And this is a space a lot of ting attention. Kodak ld argue that said that they should be in there now. And theres a big mover now. Money gram, thats in ipay, they wouldy said test ripples currency. Eventually use it, but its testing it. As we know, weve talked lot, any whiff of pto talk and this is a more concrete one than weve small rom other, Companies Like long island iced tea, for instance. Well talk retail later hour, when we have an interview with mike george qvc. Etf catch bloomberg every wednesday. Coming up, the house passed that would extend the ability to spy on emails. Rs well talk with rand paul about why he opposed it, next. This is bloomberg markets. The house passed a bill to intelligencean program that allows the overnment to spy on suspected Foreign Terrorists outside the u. S. Kevin has a special guest to about this. We have kentucky senator rand paul, who is joining us from capitol hill. Thank you for being here. As the bill stands that passed out of the house, you cant support it. You say you will mount a filibuster. What needs to change . This is a program that intelligence. Spies on foreigners in foreign lands. Im okay with that and there are no constitutional protections for foreign targets. However, as we accumulate of data, a lot americans, have their data mixed in there. The president spies on foreigne foreign lands. Im okay with that and there are makes a phone hesto a foreign land, in the database. If i call someone in a im in the try, database. Women nessmen and talk to people overseas, theyre in the database. You should not be allowed to search them or use information in there against them without a judges warrants. Frankly, the information is gathered without the constitution, so should not be used for criminal prosecutions in the united states. The current bill does not right to ericans privacy. Guarantee that Mitch Mcconnell will address your concerns . No. I have a replacement bilko ron red with senator oregon and we have a bill that has more protections for americans. Given no en will be s that it heard. Senator, where is President Trump on this . Arlier today he tweeted seemingly contradictory tweets, saying this is an act that may have been used phony dossier to abuse the Trump Campaign and others. That said, ive personally this. D the fix to where is the president on this . President , the like myself, are upset that there are people within the ntelligence community that are biased and using intelligence powers to go after the president. We have someone at the f. B. I. Talking to his istress about preventing President Trump from winning the election. Talking with somebody named suspected to be second f. B. I. , to the ave an insurance policy to prevent donald trump from being president. So he is concerned about the bias. We want more oversights, not less. The specifics, you will have to ask him about. Politicalization, the bias involved in this, its what madison warned us said that men are not angels. Because men are not angels aisle, sides of the they tend to be corrupted by bias. And balances. Thats why we ask that a this, a real judge, real public court, give a warrant if you want this database. You talk about checks and balances. Are you prepared to should this is continue on . Bill of k the rights is important enough to filibuster for. The Fourth Amendment is what said is the spark that led to the american revolution. Will filibuster in defense of the 4th amendment. Have rican should their phone calls, emails, letters, looked at, read by the government without a a judge in a public court where they have their own lawyer and able to ebate this in public in front of all of the world to see. So, yes, its something fighting for. Jeff flake, lindsey graham, headed to the white with President Trump. Theres apparently been a daca deal. What can you tell us about deal . Ca do you support it . Does this mean there will not be a Government Shutdown next week . Theres room for compromise on daca, but to my mind, there are some important things that have and have to be believable and in the bill nd that well have increased border security, that well end the diversity lottery. Accept people based on merit and not a random progress. Just because you get to come, doesnt mean 50 or 100 f your relatives get to come. If those things are adequately addressed, i think we could do something daca. Are the democrats willing to compromise . Think Immigration Reform has been held up because of want sigents that everything or nothing. That buy meeting, n President Trump said that the chain immigration would off. Parated i think that things were thrown out there, but from what ive understood. Of the people from our curtwant to see border enhanced, and going to a meritbased system. Think that knees needs to get addressed to get to daca. To make i will have a decision. I think the bottom line is, republicans are willing to this. Ate on the question is, are negotiate . Ill to yesterday at the white house, President Trump asked about whether or not he meet with Robert Muellers investigation. He said, well wait and see. You think that president rump, if asked by bob muellers team, if asked to sit for an interview, should he do it or not . Terrible idea to sit down with the f. B. I. Your lawyer should talk to the f. B. I. You could be tripped up and accused of lying. A lot of work left to be done, but were estimating that 90 of the workers will an increase in take home pay because of the tax cuts act. Historic legislation doubles the standard deduction, simplifies the filing process, lowers the middle millions of income americans and their families. I want it acknowledge the office of tax policy and the i. R. S. That worked around the clock to meet our to workt objective, with the existing forms and existing systems. The nt to minimize burden on both employers and Hardworking Taxpayers and getting this implemented in february. This is just the first step the threestep process. Next the i. R. S. Will be releasing a new withholding that will be by the e on irs. Gov end of february. This will help to provide certainty, with so theyre neither overwithheld or underwithheld and can plan financial decisions. Ased upon last years withholding tables, 76 of taxpayers were withheld so at the end unds of the year. We expect based on the new will be no e Material Change in this number. Taxpayers ourage to use the calculator when it is released and will effort toarketing make sure people understand that. Finally, id like to say the treasury and i. R. S. To Work Together release a new w4 for 2019. We expect to release that later in the year. Employers, ith payroll providers to design the w to form to reflect the new law. On the i. R. S. Will focus simplification and userfriendly process. Hese new tables will help deliver the tax cuts as soon as possible to as Many Americans as possible with disruption as possible. This will continue to focus the optimism and Economic Growth returning to this country. Would also like to highlight the announcement this morning from walmart. We want to thank them. Increasing their minimum wages, issuing bonuses and expanding family benefits for over one million employees. Walmart is the latest an any to make such announcement, direct result of the tax cut act. They join over 130 other nation,s across the who have already given such relief. Two now up to over million workers that have seen special bonuses or wages. Nal with that, im happy to answer any questions. I have to start with you because you have the hat. Reporter okay, thanks. Made we laugh. N records to walmart and the minimum wage, does that we can expect movement on the federal to rnments behalf increase the federal minimum wage for everyone . I think the most mportant issue is for companies to increase their wages. Walmarts number is above the minimum age. Focus, which is what the tax cuts act has been all about, putting more money in companies. 70 of this will be returned workers. You believe they should raise the minimum wage . Next question. For those who are watching, on february 1, will these withholding effect and to thats when the american taxpayer will first see a change in the withholding of paycheck . It will definitely be in february. Ome companies will have it set up for february 1. Have the next pay encouragingere companies to do this as quickly as possible were ahead of schedule in the release of this. That in uld expect any event that its in february. What is the point of the Trump Administration going regarded that is usually as a hangout for globalists . A i dont think its hangout for globalists. I think the idea is that the over ic team will go and talk about the americafirst economic strategy. Were thrilled that the president is coming. The economy thats good for the. S. Is good for rest of the world. You just talked about walmart. A big deal. What has been the effort walmart, with this administration, for them to raise their wages . Again, the whole purpose of the tax cuts act was to put more money in so they could compete competitively with international companies. You know we had one of the highest tax rates in the world. We taxed on worldwide income. We changed that. This is a revolutionary process. We thought it would be great and were nomy thrilled with the number of companies that we see accordingly. Weve been talking with lots for a long time. Were thrilled with how people are responding thank you, mr. Secretary. Are using an outdated or the system will use an for this year. You will encourage people to calculator on the i. R. S. Website to try to figure things out. Taxes are messy to begin with. How is this not going to lead to in one way or another some sort of implementation mess . Well, i give an enormous amount of credit for the team at treasury and i. R. S. Been working around the clock through the holidays. Ou mentioned, we had an existing form. We had existing technology. How to o figure out fit this in this format. The fact that we have been same oll keep the percentage of people that we wanted to be sure that people were not overwithheld and underwithheld and we ran a lot of models. Thats phase one. Will work tor with the new child tax credit. So the taxpayer can see, do have the right number of exemptions that are filed or adjust that . I want to be sure that we get a lot of feedback as we design that. Threestep in implementation system. This was rushed . Absolutely not. The withholding tables each year. Will see people changes. Yes in the back. It sounds to me like you are saying that the dministrations policies are partly responsible for but almart wage rise the layoffs have nothing to do with you. Is that not inconsistent . What im saying is that the administrations conomic policies are a function of what we see with and investment. Some companies will invest capital. Some will return money to workers. Lots of things are going on we he community and appreciate what walmarts doing. Chinese ear the leader made a speech and talked about isolatoinism, necessarily being a good policy and kleina saying, open for business at a time when other countries are turning inward. S the president going to respond to that line of argument . What will he say . I think youve heard a lot of the president s messages. I expect they will be consistent. That the president will talk about trade, free, fair trade. Weve been clear with the chinese on the issue that we deficit,h the trade making sure that u. S. Companies can compete fairly talk e president will economic t his program. Thank you, mr. Secretary. On you give us an update the negotiations over nafta . And how concern is this administration over the fact canada has made a complaint to the w. T. O. And hat mexico is concerned that this administration will in short order withdraw from nafta . We gave the president an this morning on trade. Ambassador lighthizer is doing a great job renegotiating nafta. Will be pect it renegotiated or well pull out. An update give us on treasurys progress on askedst that congress for. I believe we were expecting it in january. As were working on it speak. It should be released in the near future and something focused on. If i heard you correctly, you are predicting that be a great increase or decrease, number of the american taxpayers that used to get a refund the same get a will still refund that have been expecting to get one all along. Is that correct . Thats correct. Then address the democrats charge that you all are juicing this . I think this is another ridiculous charge. I specifically want to make clear that there wont be a change in that number. We have people that have worked carefully on this. Objective is not to have taxpayers overwithheld so they owe money at the end of the year. We have a system. 90 of the people will get money. The same number of people will get refunds. Actively encourage and make sure that taxpayers understand how to go on to calculator. Well work with payroll providers, work with education do sessions, so taxpayers are properly withheld. Newre you expecting any sanctions on iran to come through treasury . I am expecting new iran. Ons on we continue to look at them. Weve rolled them out. And i think its you can will be more sanctions coming. Thank you, mr. Secretary. Leaders in some states, connecticut, new york, new jersey, are talking about the impact of the scaleback, letting their property taxes in a way that would be deductible. Will the administration halt any of those efforts . From the treasury standpoint and i. R. S. , i dont want to speculate on do, but i e will think its one of the more ridiculous comments, to think that you can take a estate tax that you are required to make and dress it up as a charitable contribution. I hope that the states are more focused on cutting budgets and giving tax cuts to keep in their states than evading the law. Secretary. U, as the National Debt clock approaches 21 trillion, is his something that the administration is concerned about . Again, i think we said, under the lasted a minnesota station it went from 10 trillion to 20 trillion. Of course were focused on thats why were focused on Economic Growth. Was about an growth that will create more money for the economy what can we expect the by the debt to be end of growth that the president term. Projectionhave a for that right now. Thank you, mr. Secretary. You talk about the tax being 90 of the taxpayers benefiting from it. Would seem that under you circumstances, will eliminate a lot of the deductions which so many Small Businesses and people depend on. Is there really a major cut deductions and how do you expect that will play with the Small Business community . I think there have tax about simplifications and getting rid of deductions. Businesses, one of the best features of the tax features l the that go to small and medium businesses, there are incentives, weve heard more good news from Small Business than even walmarts of the world. And selfemployed . Selfemployed, too. Mr. President president . Sorry. Mr. Secretary. [laughter] in the other room. In talking about the benefit that most American Workers will see, ouldnt it be a good day for the president to release his tax returns so we can from thee benefits tax cut bill and have you recommended that . Again, ive had this ive on before when been up here. I will say the same thing. The same e you answer i gave you last time. Think theres a ton of Financial Disclosure that the president has give in the american people. They voted for him. Hes the president. I think people are happy with that and the president will decide what he wants to do. What does the Administration Hope to achieve with additional sanctions on iran . I think the president s aspectsar that many of the iran deal need to be changed many activities outside of the iran deal, ballistic be missiles, other issues, that ell continue to sanction that are outside the jcpoa. Rights violations. We cant be more focused. We have as many sanctions on on anyday as we have other country in the process talk to look at things. Secretary. Ou, mr. Two quick followups. The question related to the democratic charge about the could come up next year. Are up at all yes or no giving any consideration to the mid term, when you ensure that it will happen not, for y, and example, later to give you more time to sort this out . Explain. E the i. R. S. Issues tables every january. We were changing the tax bill, so it made sense to february,ry o we gave people time to institute this. Any claims that were doing this for political issues are ridiculous. And i would also make a comment, the democrats made a bunch of noise about our numbers. And the Inspector General a report that made very clear there was no political interference in this and how we ran these numbers. So i would hope that the emocrats are institute this. Any claims that were doing this for focused on doing things that are good for the economy and the american people. You talked about the message being consistent, that the president will deliver in focused on doing things thatswitzerland, b big messages has been aimed at middle class americans. Explain g that you how its consistent to take members of his cabinet, many wealthy, tovery rub elbows with other wealthy people in switzerland. Explain the consistency on that . The members of his cabinet have no interest of there and rubbing elbows with anybody. Meeting bout Business Leaders and our counter parts and its about jobs, eighting Economic Growth for the u. S. Heres tremendous investment in the u. S. Theres tremendous trade deals going on. Weve been very the president has delivered. Look at the stock market. This trip is all business. Assure you, it has nothing to do with anything other than that. Say, when please it comes to charitable giving, people worry that he new tax code with the higher standard deduction could limit giving to charities. Do you share that concern . I dont and i would say the opposite. That raised the limits rich people can give to charity to encourage charitable donations. Will take one more question. There in the back. Thank you, mr. Secretary. Will the president decide today on the iran deal and do you anticipate that he sanctions like hes done in the past . I will not make any that. Ic comments on its still under discussion. The president is contemplating his recommendation. Thank you very much, everybody. Thank you. Thank you, secretary mnuchin. A surprise appearance by reasury secretary mnuchin talking about the tax legislation. Said that it will benefit 90 of tax paying americans. He i kept waiting for him word postca postcard. He did not. Super, d about a userfriendly form. And he shot down allegations that releasing a withholding calculator or table is politically motivated. Said that discussion of that is ridiculous. He said that the treasury working. Will be ogether to offer new withholding calculators and w4 forms for employers, as he expects the same number of people that would get tax the past will continue to get tax refunds in the future. Himself on und over the ive president and cabinets trip davos saying they will not rub elbows with other meet y people but to leaders and create Economic Growth. Yes. Talk esident will about the americafirst agenda. All right. Shellett, lisa Morgan Stanley. Also with us, michael mckey, economics and policy correspondent for bloomberg news. Treasury secretary said that the tax cuts will be good for the economy. Jobs. Ll create he gave a shoutout to almart for their announcement to raise minimum wage and saying it dds to the Money Companies that have given people wage increases. Do you see that filtering economy . O the a lot of people say that Companies Like walmart needed to make this move of the tax cut. Yeah, but our nterpretation is that it accelerates the potential for boom or bust in this cycle. What it does is it pulls forward some of that consumer nto paychecks that may get consumed. Focusing on how uch of the enthusiasm around christmas retail sales was funded on credit cards. Been prespent their rojected tax savings and this euphoria were seeing is in the numbers. So theres nothing left. Im curious about implementation. There were questions about whether it would be messy. Rushed . Ing compared to past tax changes wear your boots. Messy. L be its a complete rewrite of code. Reas of the tax the administration would like to get money in as quickly as possible. Because the soon are you get they figure you might spend it. If you havent already spent it. Better ou will feel about President Trump. For the administration, its, push this out there. I. R. S. Urging employers to start to withhold less of your paycheck. Problem is, you dont know how much has to be withheld have not ey written the withholding tables. The Taxpayer Advocate within the i. R. S. Said they need be ablelion just to to write the regulations and withholding tables. That. Ont have it could take some time. Withholds loyer too much money, you will maybe overpay your taxes, they give you too much back, you could get to this pril 15 not year but in 2019 and owe thousands of dollars and you it. Dnt even know how can you urge people to o this when we dont know what the rules are. An s that going to be issue for Economic Growth if its implemented in this rocky fashion . I think it can be. I dont know what people are assuming in terms of the consumer. He i think the other piece of markets have discounted a broadbrush to corporate and broadly to the s p 500 and the tax time that plan was announced and signed. Said that we think that s p 500 earnings will go up 6 to 7 . Are up 6 tots 7 since then. The way y company, they actually implement tax olicy, it will be quite different. The idea that were only going to get upside surprise positive revisions, i hope and a a prayer. I think that some companies will have to, you know, make choices and talk about the value of axdeferred assets are different and going down, etc. So i think well get a dispersion in guidance come First Quarter in terms f how different cfos will implement this. We saw a piece today from apple rg about how may save 4 billion on the tax bill because of the way t was written and it was written so quickly, apple and companies who have tarted their fiscal year, companies who start their fiscal year in the fall. So theres one big loop hope. Farmer is that if a they to a cooperative, may be able to wipe out their entire tax liability. Company ell to a like Archer Daniels midland, taxes. Ould owe there are some real issues with implementation. Take, lisa, is that betting on ais tax benefit, its a hope and a prayer. We spoke to federated investors. Risks are to the upside, not the downside. Theres just too many people that feel its prudent to wait for a pullback. If we get one, it will be back to current levels by plays out. Is equities. Ed were pretty overweight, as you know. And he said that the tax and earlier r than people expected. 21 , ended up being a surprise. How do you see this filtering through to earnings, not just in the first year but down the road . Apple gets a benefit, but later on is when you will really see it pay off. We may see it pay off. And we may see it pay off fact, Companies Take he savings and in vest in productivity enhancing growth. S we know in past tax cuts and other times, Companies Cash to buy ir back stock and raise dividends, not huge of thproducing uses cash. I think the way the cash will be a dedetermi if this isant of one and done or if it has legs. That the same day walmart is raising the people wage, giving bonuses, its closing 60 sams clubs, so there are some cuts that are coming at the same time. We saw that with at t. Mnuchin think that said that they estimate 70 workers. Eturned to well, thats a debate. How much of business taxes capital and how much is paid by labor . Or many years, the feeling was that it was mostly born by capital. The owners of the companies paid the most and suffered most. There is a particularly republican side, revisionist studies that side ist employees higher. So they will get a bigger benefit. Has that changed because the has been to hold down salaries . And other people are saying dynamics are such that you pay what the market are bear. Bonuses out there. A lot of companies saying that they are giving raises, walmart among the first. Thank you so much. Michael us. Hael stay with this is broomberg. Bloomberg. 3 00 p. M. In new york. Im julie hyman. Scarlet im scarlet fu. Welcome tobloomberg markets. Scarlet we are live in bloomberg World Headquarters in or otherarea julie top stories we are covering. U. S. Stocks are recovering from their first retreat of the year, pushing back to record highs. Surging Energy Stocks are helping lead the way. Taxes backouse puts in the spotlight. Treasury secretary Steven Mnuchin makes a surprise appearance at the Daily Press Briefing to announce the next step to implement the tax code. And china creates challenges. We look at the worlds secondbiggest economy as it adds to bond investor worry. We are one hour from the close of trading. Lets check on markets with abigail doolittle. That posit, was just that yesterday. Pause, was just that yesterday. Abigail . Take a look at the nasdaq, really leading the way. As julie mentions, record highs right across the board, relative to the new year they major averages are up seven of the eight days. So, lots of optimism ahead of earnings. Julie also mentioned oil as a driver. Oil right now is only up a little less than 2 10 of 1 . Oneier oil was higher by point by 1. 9 four days in a row. There are lots of thoughts about the fact that u. S. Stockpiles are low and that is a positive driver, a bullish driver for oil, certainly helping the Energy Complex today. Energy is the top sector for the s p 500. Even though we have oil higher we have the airlines hire. Typically when oil is can pressure the airlines but take a look at the gains on airline shares here. Delta airlines, of top at about five and have percent. Delta airlines did report its Fourth Quarter, they beat both top and bottomline expectations, very Strong Quarter there. And they also said they see fares rising, but not rising, bitcoin. Down near the days recession lows, down 7 with continued uncertainty over what is next for bitcoin. It could take two 1800 this year. As take a look at the chart, in a moment. But also look at kodak along with long blockchain, the long island iced tea. A new phase in the crypto track. That new phase of these companies that used to be engaged in other businesses going bitcoin. But this is bitcoin over the last six months. In north we have the 50 Day Moving Average and an blue we have the 100 a moving average. We are putting in lows on top of that range, on top of that 50 Day Moving Average. The last two times that coin day moving50 average, suggesting we could see bitcoin below 9000, a greater than 50 drop from the alltime highs. So, wild ride for bitcoin. China is adding to bond investor worries. It may halt its purchases, according to a person may familiar with the matt upgrade to a person familiar with the matter. We should point out china says that report maybe take news. Yields on the u. S. Bond market on the 10year are rising for the fifth day. This marks the end of the bond bull market. Joining us now with more is michael enright, and enright and associates principal. Michael, levy start with you. Michael, let me start with you. Its clear china is taking steps to open a part of the economy, and in particular its financial industry, without disclosure that it will allow foreignmajority ownership of some financial ventures. A lot of people say the devil is in the details. We have to wait three to five years until things settle down. What does that say about the trend overall about Foreign Investment in china. Michael with respect to china reevaluating its international holdings, if i were managing a 3. 120valued portfolio of international holdings, i would be reevaluating out on a daily basis. So the notion that china is reevaluating particularly with Interest Rate trends in the u. S. , with the potential for further Economic Growth, and the potential for there to be additional trade and economic tensions, thats only natural. When we look at what is going on in Foreign Investment in china, its quite interesting. Because there has been a lot of pushback. Reported,nies have you have reported, others have reported that china is becoming more nationalistic. If you look at some of their 2025,tives, manufacturing internet plus, these are all in part designed to displace foreign companies. And the trend of Foreign Investment is slowing. However, there are also senior chinese leaders who understand that if china is going to go to the next level of its development, it has to find a way to work with foreign companies, foreign investors. And my company did an analysis late last year, and looking at the impact of u. S. Companies on chinas economy. And while last year the inflow of Foreign Investment would have been between 2 billion and 3 billion u. S. Dollars, if you look at the Economic Impact of the operations of u. S. Companies, their supply chains, distribution channels, etc. , the impact on chinas gdp was well over 400 billion u. S. Dollars. And it is not slowing down. Every Major Initiative china has is going to be a lot easier to try to implement in cooperation with foreign companies. China needsu agree ,s much if not more needs us as much if not more as we need them . How does this jockeying between the two nations inform your Investment Decisions . Year ve been in a 15 clear,where theres a mutual dependency between the u. S. And china, with the excess savings accumulated in china being used to finance consumption and deficits here in the u. S. But the fact of the matter is, the geopolitical rhetoric has shifted materially come over the last year. And i really, genuinely dont think that that is lost on the leaders in china. Xi and when heut is really beginning to articulate above and beyond economic reforms, it is about geopolitical leadership. Whether it is one belt am a one financing and moving down a path toward the movingtionalization, away from the u. S. Dollar as the only reserve currency. Theres a lot of things that are going on, and i dont think any of us should be surprised that u. S. Environment where the is talking protectionism, is talking about trade, that china would let leak a story that says, well, you guys are going to be running twin deficits and those deficits are going to be increasing at an accelerated rate, and im not sure we want to remain the number one biro treasuries and every option. And i think we should be surprised at that. I mean, all is fair in love and war. Scarlet michael, weigh in here. In terms of going forward, what china needs to work on next, how much easier is this agenda to fulfill given that you have a president on our side that has made a trade war a priority, and downgrading the u. S. Involvement in the rest of the world a priority . Interesting because i have frequent contact with senior officials in china and what they tell me off the record is that they are amazed the u. S. And the rest of the world has allow china to get away with its trade. Scarlet they are running with it while they can. Michael exactly and they are not at all surprised there is pushback. This is a multifaceted game. Trade, it involves investment, and involves to systems that are so fundamentally different from each other. And they are going to bump. Understand this has to be worked out, and for the first time really, and i have been based in asia for 22 years now, the first time u. S. Companies are actually telling me, they are actually quite happy the u. S. Government is taking a more aggressive stance, because they believe that is the only way, basically the Companies Working with the u. S. Government, taking a more aggressive stance, that china will open up more and become more collaborative in the international sphere. Stepping back from the backandforth rhetoric on trade for a moment, just economically, lisa, how do you perceive the china Economic Growth engine at this point, and then of course the spillover effects in asia and the rest of the world . Lisa after a member china is the worlds secondlargest economy and is contributing every year, close to two thirds of the and or mental close to two thirds of the incremental growth. So it matters a lot. Over the last six months, one of the key reasons the Global Economy is on the upside is that the chinese economy is on the upside. I think the broad consensus view is that china is going to gradually slow throughout the course of the year. But to the extent that that slowing is truly gradual, i think its going to contribute to global gdp growth that is going to be higher in 2018 than was in 2017. I think the key question is, to what extent does that translate into very high quality corporate Earnings Growth . View, at thisr point it may not. We may start to see pressure on margins or lower quality of earnings, which means a lower multiple on whatever earnings week on whatever Earnings Growth we get. Scarlet michael, what do you think . Better andonomy be markets not reflect that so much . Given that china needs to target other parts of its economy . Michael as china grows, we are now adding at a much larger pace. Workforce growth is that mentor negative during so in terms of her return in terms of returning more on a per capita basis, we dont need the growth rates that were there historically. And many things chinese to do in terms of improving in terms of improving productivity, moving up the valueadded chain, these are things the leadership has communicated quite clearly. An effective maybe that they are too aggressive, they are try to fly before running in some instances. But the key in china still, in terms of reaching that next level, is allocation of resources. And in particular, allocation of financial resources. Because what we have seen over the last two years is a recent realization and eight reemphasis on stateowned enterprises, which are not the most dynamic. They are not, in many cases, the most productive use of capital and resources in china. And it is really weaning away from the economic reliance on statedont enterprises while stateownedip enterprises while the leadership remains confident that they control parts of the economy. Michael enright of enright scott and associates, thank you so much. Lot is going to stick around with us. The house of representatives today passed a bill to reauthorize a key Foreign Intelligence Collection Program with an important change. It requires the fbi to get a warrant if it wants to view the of Americans Communications swept up in the process. The legislation to renew the fis a Collection Program that allows spy agencies to elect intelligent on foreign targets abroad passed the house and now heads to the senate. This strikes the balance that we must have between honoring of protecting the privacy rights of citizens, honoring civil liberties, and making sure we have the tools we need in this day and age of 21st century terrorism to keep our people safe. President trump has said he will sign the bill, which will extend the program for six years. It is Prime Minister theresa may has announced a 25 year plan to improve the countrys environment and eliminate Plastic Waste. Includeveiled today eliminating Plastic Waste by 2024. The Prime Minister vowed that leaving the European Union will not mean lower environmental standards. She said all existing eu environment regulations will be incorporated into u. K. Law. Ecuador has granted citizenship to wikileaks founder julian inange, who has been living asylum at the nations embassy in london for more than five years. The ecuadoran foreign minister, Maria Fernanda espinosa, announced officials plan to naturalization. Ecuador gave assange political asylum after he sought refuge in the embassy in 2012 to avoid sexrelated crimes in sweden. 32 people have been killed in the first 11 days of the year, more than double last years number, in puerto rico. Of customers in puerto rico remained without electricity, nearly four months after Hurricane Maria ravaged the island. A little boy shot in the sutherland springs, Texas Church Massacre in november returned home in style today after more than two months in the hospital. The sixyearold was shot five times but his father says he is doing well. The childs two siblings were killed in the attack. Home in a fire truck. Hes the last of the victims to be released from the hospital. A gunman stormed the church on november 5, killing 26 people. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. Im Mark Crumpton. This is bloomberg. Scarlett. Scarlet mark, thank you. You can watch all of our interviews on blurb work interviews on bloomberg with the function tv. Abouthallot, talking Steve Mnuchin showing up at the White House Daily briefing. There she is. This is bloomberg. Is bloomberg markets. On julie hyman. Scarlet im scarlet fu. We are seeing euphoria in the markets. Lisa shallot from Morgan StanleyWealth Management is speaking with us. When we talk about signs of euphoria, what does it look like in practice . Because every cycle is different, isnt it . Lisa it is. What we typically look for is things, sentiment, positioning, and what we call tax call. Sentiment today is a kind of a bull versus bear indices that are kind of in extremes, two to three times more bowls than there are bears. In terms of positioning, how much cash is on the high lines that how much cash is on the sidelines. Starting to approach the level of 10 and private client accounts. We are starting to approach leveraging piercing prior peaks. If you look at how folks are hedging in the futures market, typically when folks are bearish they are buying futures on the treasuries. We saw that a lot last year. Right now, the biggest long contracts are s p minis. Off with thatting fear of missing out where people are hedging because theyre afraid the going to miss the upside of the market. So those of the things we are starting to see, and that is what makes us concerned that we ask yourselves the question, what is the upside from here . Because we know we need upside surprises ultimately, to really put the next leg in. Julie that also brings up the question of timing. Thats the tricky part. Ucl these signs but theyre actually has to be the rolling over. So when you change your strategy . Do you try to anticipate or do you wait for the next thing . Rise we try to advise private clients and we think about the longterm and try to devise people against market timing. Here we are in a new year, people might be getting yourdent bonuses and taking stock over taking stock of how they did over the last calendar year, and we talk about refocusing on your core positions. Last year some Asset Classes were up 20 or 30 . If you owned International Stocks for example, bring that all back. And what we are saying is, if you profit take, this is the first time in a decade to Start Building cash. Scarlet and you also were moved highyield . Lisa we did remove highyield. Scarlet lisa shallot of Morgan StanleyWealth Management was with us for the hour. Options insight is next. Julie this is bloomberg markets. Steve sosnick is of interactive brokers. Steve, thanks for joining us. In the fall we were talking about a big trade the people were calling . 50 because of the types of trade that he was doing. Now some are calling a new trader the vix elephant because of the tracy is putting on. Elephanttly is the vix and what is it reflecting in the vix market . If the colorful name some he came up with. Of these veryome large, hedgingtype trades going on using vix options. The vix complex is a very useful tool for hedging purposes. It doesnt correlate perfectly inversely with the indices, but its enough because basically is markets go down people get nervous, and as people get nervous, the implied volatility, which is what vix measures, the implied volatility options on the s p 500 tend to spy. And thats usually a very good hedge in times of market turmoil. Julie so in this particular, this new position that this newvidual put on, this position establishes that they putsabout 56,000 february and then they sold the combined number of 2, 25 calls. They are hedging against increased volatility. Steve they are hedging against an increase in volatility. What happens in this case, remember the vix options trade up the vix future curve. The vix future curve is actually very steeply spiked. So even though you have the cash vix with a nine handle, the february future is trading at about 11 and a half or so. You can see there that basically, the trader wins if they ask sort of peaks at 25. He is doing this by selling options, he is doing this in a way so that it minimizes his cost in the hedge. Julie does it make sense, especially in buys like that . That im question wrestling with, with these big traders is, who is doing this . I have no personal knowledge of it. I believe the logical person would be a highyield investor. Why would that be . Because high yields, as hard as it is to hedge a giant equity portfolio, it is even harder to yield it is even harder to this will be to wait to protect them. Julie if youre not a big highyield investor is there a similar trade that will make sense . Its actually a pretty good trade. You are selling and out of money put and buying an out of money call. If it was above 25 about 25, it has artie worked out for you. Julie steve, thanks so much. Scarlet coming up, we way rewards. Sks and this isbloomberg markets. With im Mark Crumpton first word news. Vladimir putin says north Korean LeaderKim Jong Owen has met his match in trying to acquire nuclear weapons. Putin called kim and educated in mature politician and says the north korean ruler has succeeded in developing a Nuclear Warhead capable of hitting any target. A Key State Department of matt a key state Department Diplomat told a Senate Committee that u. S. Military activity in the middle east has liberated 90 of territory previously controlled by the of Islamic State but the fight isnt over. We remain focused on the enduring defeat of isis and other terror organizations, countering iranian influence, preventing the use of chemical weapons and ensuring the safety of syrias neighbors, and ultimately solving the Syrian Military crisis through peaceful resolution. Mark