Transcripts For BLOOMBERG Whatd You Miss 20161213

Christmas in orbit. A japanese cargo ship arrived at the International Space station with nearly five tons of supplies. Nasa says that there are christmas presents for the two americans, three russians, and one frenchman on board. Per day,ws, 24 hours powered by 2600 journalists and analysts in 120 countries. This is bloomberg. Scarlet i scarlet fu. Joe and im joe weisenthal. We are 30 minutes away from the close of trading. Stocks going up, more joe but the question is, what did you miss . Oliver we will take scarlet we will take a look at the technicals in a moment. Policymakers are universally expected to lift Interest Rates this year, but it Economic Conditions but Economic Conditions barely resemble last time they made that breaking the cycle. And donald trump has turned to the exxon Ceo Rex Tillerson for secretary of state. Turning into a battle riel because of his relationship with russia. We will be speaking with the Harvard Kennedy school dean, joseph nye, in a moment. Joe looking at where the major averages stand, Abigail Doolittle is standing by. Abigail the dow, the s p, the nasdaq, all headed for a record close. Was just mentioning, it did come within 50 points of 20,000. Just a really fast move for stocks year. Much of it is being attributed to the election rally. Taking a look at the dow, a chart of the last three months to give perspective on the rally. Here it is, not parabolic, but pretty close. Its worth noting that the direction election rally is pretty close. The question is have stocks got an extended . Is the tao ahead of itself . We went to the bloomberg and be looked at 5318, this is the fiveyear chart of the tao in relation to its 200 day moving average. Basically an indication of longerterm buying support momentum. Cases over the last five years the tao has moved 10 over its moving average. 2012, 2013, and for the First Time Since then, just now. The past few times this has happened it has tended to consolidate, so the chart may suggest some sort of nearterm pullback, either this year or next year. All of the love is going to the dow jones, but lets take a look at the s p 500 with the vix. It is a oneyear chart of the s p 500, hitting record highs today. The vix, in orange, near record lows. We can see this massive divergence. We have seen them in the past. They tend to tell us when things are going to become complacent and usually that means some sort of volatility or pullback is ahead. The charts may suggest that some sort of pullback in volatility is ahead for stocks, joe. Thank you scarlet thank you so much, abigail. Whatd you miss . Some lawmakers questioning the relationship between Rex Tillerson and Vladimir Putin. Josie joining us now with more is joseph nye, considered one of the top scholars in foreign policy, he joins us from boston. Great to see you. First of all, i want to get your read on this selection for secretary of state. What challenges would he need to in order to do the job effectively as americas top diplomat . Well, i actually thought it was a good choice. That hes been criticism has been close to russia because he has had to deal with russia. That is where the oil industry has so many investments. In i cant imagine him being Vladimir Putins pocket. He has dealt with him, he knows them. Sat with him on a nonprofit board. I find them to be a reasonable, balanced person. Someone coming up to the private sector who hasnt come up through the ranks in your view could be an effective secretary of state . Joe i think so. He will have a good, professional group of people around him who can help them with the flow missy. This is a smart man who has run a very complex organization in many countries. I think hes going to be able to handle the job. Scarlet i want to read you a e from of contributor to a contributor to Bloomberg View. Joe is u. S. Foreign scarlet is u. S. Foreignpolicy our diplomats in need of disruption . Joseph i dont go that far. I think we have got some of the good people in the state department who understand russia. Used to be the deputy secretary at the carnegie endowment, he was ambassador to russia and he understood russia extremely well. Ofs wasnt a factor in terms difficult policy. Had a because we have difficult russia to deal with. Let them your prudents russia is not easy. Joe there are obviously growing governmentat that may have been involved in the hacking of the nails, perhaps hacking the dnc in attempt to meddle in this election. How big of a deal is it if thats true and what would be an appropriate response . Should the government release everything it knows about it . How to deal with this Going Forward, in your view . Joseph i think we have to take it seriously. The russians have a habit pattern of interfering a lot of elections. In europe as well. Now that they have interfered in an American Election i have to think that we must show them that this is serious in that we take it seriously. If it were up to me i would themmend that the name of particular individuals involved have targeted sanctions on them. Making it difficult for them to have Bank Accounts overseas. Thats the kind of deterrent i think we need if we are going to avoid this behavior being repeated in the future. Do you presume that the kremlin will be involved in future elections . And if so, would they take similar actions . Well, there are press reports that russia has ,iven money to Marine Le Pen the extreme rightwing candidate in the french elections. I would imagine that the russians are going to be involved in a number of elections. Its important for these democracies to show russia that there is a price attached to it. Its not a free good, which is why a think sanctions are important. Joe ultimately, going back to the current administration, you think that he would be a wise choice or make sense. What would a more constructive relationship look like between this government and the Vladimir Putin government . Joseph i think we have to maintain sanctions against russia to show that invading your neighbor and stealing territory by force is something that has a penalty attached to it. But its also true that we have to do business with russia. Theres just a lot of things, whether it is the arctic, the climate, iran, the middle east generally, where we have to be in contact with the russians. I think that his appointment means that we will have somebody who understands russia, but who will be in contact with russia. Scarlet you have made the point that americans seem to misunderstand their place in the world. Do you think a donald trump correctly understands where the u. S. Is in the world . Are we in what part in the world . Where is our place . Colon the United States remains the Worlds Largest power and is likely to continue to be that. I wrote a book last year called is the American Century over . The answer is no. In that sense, the American Leadership in the world is crucial. It doesnt mean that we have to be the worlds policeman or get involved in every conflict, but theoes mean that in being leading country, we are likely to be the largest and that means we have to take the lead. , he all right, joseph nye will be staying with us. Next we are going to talk work withopolitical china and the tensions building with our largest trade partner. Joe whatd you miss . Donald trump accusing china of ripping off the u. S. On trade and branding the country a currency manipulator. Yesterday we spoke with the global head of rates, who said that the tension between the u. S. And china is troublesome. This is my single biggest worry for 2009. Im pretty bullish, but i fear that the u. S. And china could be on a collision course. Still with us, joseph nye. How big of a deal do you think the fact that trump seems to be ripping up the script a bit with u. S. China relations is as a geopolitical risk Going Forward . It depends on how far trump goes. If he tries to use this tougher leverage on specific, smaller, achievable goals lets say getting some sort of restraint on dumping of steel or on better, more equal treatment of american companies, it may do some good. On the other hand, if we get into a trade war with china, tariffs and a titfortat retaliation, we both lose. It depends on how far he goes. Scarlet is he targeting up china unfairly . Joseph i think that if you look back at chinas participation in the wto, they have obeyed the cases that have been brought against them, but they are still not a full market economy. Chinese state owned Enterprises Still are not exactly the same. They arent treated the same as american corporations. Pushing the chinese on that is valid. As for currency manipulation . That was true in the past. Most people think its not the major problem now. Joe trump has said that the one china policy is not a guaranteed thing. How is china likely to respond to this . From a geopolitical perspective, people are worried about that. People have talked about the domestic pressure on the government to respond, given how important the recognition of taiwan is. Play out next . Spell out how you see the different moving parts. Joseph well, from a chinese point of view, the fact that taiwan is part of china is what they call a core interest. Anything that would seem to imply questioning chinese sovereignty or secession for taiwan would, i think, be very dangerous. The chinese have said that this could be to war. Pushing it too far might. Callhen trump took the from the taiwanese president , that was out of the ordinary, but not all that dangerous. When he says that we might reconsider the one china policy, that begins to tread on dangerous, slippery ground. On the other hand, he conditioned it on getting a better trade deal from china. Then sounds like hes using it for leverage. And that has led the chinese to the policy towards taiwan is not for sale. It has also led some taiwanese offenders to say groups, our interests might be traded away. Its uncertain where this is going to turn out. Scarlet coming inside the bloomberg, we have a chart that showcases how taiwan shapes up with a share of gdp. It is 1 5 the size of china. Maybe taiwan is just as guilty of this. Joe thats for the surprising. Is there something to be said for this sort of unpredictable diplomatic strategy that trump has taken so far . When he took the call from the president of taiwan, everyone asked was this an accident, a long planned thing did he know the significance of it . Keeping everybody guessing, keeping them on their feet. From a classical International Relations diplomacy perspective, does this have some value that says maybe there is something that could be gained from this . The phonell, i think call from the president of taiwan was carefully planned and i think you knew what was happening. This was not an innocence abroad kind of case. And i think hes doing it to put the chinese on edge. And as he says, the art of the little bit a unpredictable, putting your opponent on edge can get you a better deal. On the other hand, you dont want to push it so hard that you miscalculate. You dont want the chinese to say my gosh, these people are going to tank terror the Shanghai Communications that nixonated back to richard. A bit of uncertainty for a better deal with trade is one thing. Making the chinese begin to think that we are out to get them in the long run and that that means that they should act sooner rather than later, thats not helping. Which may be why he tempered that with choosing one of her friends as a ambassador to china. What about other troublesome areas, like russia . Voice felt that russia, a country in decline, is more dangerous than china. Declining countries take greater risks. That was true of austria on the on the eve of world war i. Rising countries can bide their time a bit better. China is a rising country. I doubt that china wants direct confrontation with us. That said, in both cases, the big danger is an accident, a miscalculation of person pushing our advantage, our luck, and suddenly getting in over our heads. I could be true of either china or russia. What about these smaller players in the world, when they hear trump talking about things like wanting money to fulfill japan, korea,ts, expressing misgivings about whether they are worth it what are the ramifications of that kind of talk and that some of these commitments are not ironclad . There is ahink danger there. While it might be good to have a bit of uncertainty in a trade negotiation with a country like china, when youre talking about japan or europe, where you have an alliance, thats not like a real estate deal. Its more like a marriage. Your partnerping on edge and saying you might leave your wife, thats not a ory smart way to reinforce solidify an alliance. Japan, for example, we are them to get nuclear weapons. They dont want nuclear weapons. But if they think we might leave them at some point, they might decide we have to go in that direction. Joe final scarlet final question here, what is the number one thing that secretary tillerson would need to address, presuming he gets confirmed . Joseph he will have to repeat that the United States is still the major country in the world in terms of maintaining International Alliances and institutions. This is a system that we set up after 1945. It has served us well and serve the world well and it needs react the nation. , former dean of the Harvard Kennedy school of government, thank you very much. Scarlet coming up next, the that is paying off, but we will have more for you, next. Weisenthal. Whatd you miss . An extraordinary rally in the dow, of course. We are closing in on that round is it really sustainable . This chart goes back to 1998 and looks at a measure of relative strength and momentum in the dow. As you can see at the very end, this relative strength measure is absolutely off the charts. Anything in the red has historically presaged some sort of selloff. They call it the overbought territory. Measuring the relationship on the number of gains to recent losses, just so many piled on top of each other day after day. Anything could happen. We could get to 20000 and take a break, we dont know, but history says that when you pile on this mini games, we are an extreme territory and could see a selloff. Scarlet it all depends on the catalyst. Exactly. The market can say overbought longer than you can say solvent is a variation on some phrase. Scarlet alternately, we are taking a look at gary cohn as he plans to serve as Donald Trumps main economic advisor. Looking at his stake in Goldman Sachs, his shares, since election day his shares have increased by 46 million. As you know, has jumped as much as 33 and on monday got within 10 of its alltime high. On top of that, he can sell the shares taxfree if you reinvest the proceeds in treasuries or a government approved fund. On top of that, Goldman Sachs reportedly has an exit plan for executives who leave for government service, because there are so many of them. For him it would be about 50 mine 59 million in stock awards that he would have received. Also tied to hitting future financial targets and Health Premiums they get paid out as well. The board would need to approve it. Pretty good payday. Lets get you to the market close, that is next. Less than four minutes to go before the close, record territory for the dow industrials. This is bloomberg. Scarlet we are moments away from the closing bell. Whatd you miss . U. S. Stocks are jumping. Near 20,000, but doesnt get quite there as the fed begins its today closing watch policy meeting. Im scarlet fu. Joe and im joe weisenthal. Welcome to our viewers who are tuning and live on twitter. You can watch the coverage on twitter every weekday from 4 p. M. To 5 p. M. Eastern. Scarlet we have some breaking news. Ibm, laying on a plan to hire 25,000 workers in the United States and invest 1 billion over the next four years. This comes ahead of this trump a meeting with tech executives. Obviously the message here, there are a lot of concerns from the Tech Industry about off shoring and immigration policy that might hurt these companies, so this news about plans to invest more, domestically, seems to be connected to that. Scarlet laying out her vision to Fill Technology jobs before meeting with donald trump tomorrow. Lets get you to the market minutes. When you look at what has been going on in equities, another day, another record. I feel like a broken record, but we really do joe it really is remarkable. At one point today we were 30 points away from the dow 20,000, which really great for round numbers. It fell back a little bit, really powerful, but tech was leading the way. Scarlet it is higher than what happened with the 20 day average and the dow industrials being up 30 above the 20 day average. The gains really started in europe. That set the tone. The stoxx 600 is the broadest measure of stocks, good for a 1 gain. This after they laid out plans to raise capital. Of course, that stock, jumping 16 . The beleaguered tech sector is really playing catchup before those executives meet with the president elect tomorrow. Apple is one of the big gainers. Energy stocks also building on those gains. Up for the ninth time in 10 days. Murphy oil is one of the big gainers. Lets look at government bonds. Twoyear and 10 year u. S. , not doing a whole lot. They swung around a lot. To year is a policy sensitive part of the curve ahead of the big fed decision, ticking higher. The idea of a fed hike is basically locked in, but the two year yield is going to depend a lot on what the fed signals for its forward activities, so expect action on the short end of the curve tomorrow. We have been paying attention to the chinese 10 year, as it has gone up another. 10 that one has been up a lot lately. Currencies, the dollar is little changed, for the most part. You are looking at dollaryen, eurodollar, and the pound. It came up earlier, sparked by a report showing that inflation is at its fastest rise in two years. It had strengthened, but as you can see, it gave up the advance and is now down slightly versus the dollar. Joe finally, on commodities, kind of a quiet down for oil, basically unchanged, iron ore very sensitive to whats going on in china. There was even some good chinese data that didnt really seem to help, the chinese Financial Markets have an kind of weak lately. And those are todays market minutes. Now, lets get more on todays stock record with andrew sl immon, managing director at morgan stanley. Are we going to hit it and blow past it in your view . Andrew you said it, the market is overbought, but i dont see it stopping until closer to year end. Scarlet are we seeing an exit actual rotation to the beleaguered industry . Andrew you said it right. The financials and industrials were the first out of the gate and now people are looking for where can i get involved in the market that hasnt participated . Thats the tech sector. A meeting with the president elect only helps to spur it on. One thing we have been talking about here is that in every way imaginable, investors havent caught offsides. First of all, they didnt think that trump would win. That if you did, it would cause a selloff. Underwas a lot of exposure to equities. A lot of overexposure to bonds. In every way imaginable, it seems like people were not positioned for this. How much has that position changed to sort of get more on the right side of things or is the more catchup, still . That isthe thing fascinating about this is that the economy hadnt earnings recession into 2016. As you look at the numbers, it was easy to figure out the next year we would have big Earnings Growth. The problem with the election is that everyone was so focused on it, no one was focused on the fact that oil had gone from 25 to 50. You start looking at the numbers and you think my gosh, we will see 12 to 13 Earnings Growth . Afterwards where you said gosh, the economy is starting to recover. Small caps are working. The highyield market is working. The point is that it has something to do with the election, but it also has a lot to do with the fact that we are going to see real good Earnings Growth next year, even before joe was the election a catalyst for people to take a fresh look at what was already in progress . Andrew we are hearing from companies that the election is behind us. Im not sure that it is about who got elected so much as its behind us, so lets look forward. There seems to be more optimism. Im not sure its just too was elected, its just that the election is behind us. The key thing here is that regardless and without any fiscal policy reform coming down the pike, we will see 12 to 14 Earnings Growth next year in that has been pulled forward somewhat, but none of the numbers for next year bake in anything like corporate repatriation or tax cuts, none of it. Thats still out there. Scarlet so, theres still a lot out there that could spur further gains, but what will it look like . It wont shoot up as we have already seen. And there is going to be a long lag time between the policies being enough and taking effect. Right. Thats the next thing thats going to happen is the First Quarter earnings report. The numbers for next year, 133 for the s p, thats embedded with good recovery for materials. If those numbers are lower or have to be brought up, the market drives higher, but you are absolutely right to the extent that none of this stuff is going to start on january 1, its going to take some time. I do think that the concept that we dont have Central Bank Policy as a backstop means that there will be more volatility next year. I think an important concept to consider is that as inflation begins to pick up, you get more Topline Revenue growth. With more Topline Revenue growth , the multiple initially on the market goes up, it doesnt go down. Thats the playbook. Joe how does the strengthening u. S. Dollar play into it . Given expected Monetary Policy diversions, fed hikes, people think that 2017 is going to be a great year for the dollar, although they thought the same thing about 2016. But if it does continue to strengthen significantly, how does that ultimately play out for the s p . Not be good. Ll in 2014 the dollar appreciated by about 25 and it hurt earnings, right . It is only up about 10 . Heres the question i want to ask you. If higher Interest Rates always lead to higher currencies, how come the best currencies in the world arent the ones with countries that have the highest Interest Rates. It means that inevitably there is a little bit more inflation. People not automatically running into that currency. Thats why i think the dollar isnt going in a straight line. I do question this area if rates go up, the dollar has to go up. Historically that hasnt been whats happened. Last time you were on in august, you mentioned small caps outperforming and the expectations playing out with the latest data and this idea that donald trump is going to pursue and America First policy plays too small cap strengths. What are the running processes like for these companies when you have got Rising Oil Prices and a stronger dollar . Largecap equity portfolios, but i think the key thing here is these multicap companies, the effective tax rate is not the full rate because they make so much money abroad. A great focus is to think about what companies will benefit the. Iggest from a tax cut is that small cap or domestically focused . And thats why they are really starting to work. Some people call the latest ecb decision the taper, others revise what they had in place. Inre were several elections 2017. Are going to be several elections in 2017. How does that look . Andrew i think that europe will be the best performing market in the world next year and the reason for that is that things are bad and are priced bad. We are coming off one decade of the worst performance in your of relative to the global market. Ever. Stocks are priced as if nothing is going to get better. ,ook at brexit or this election looking at whats going on in europe, there is a movement more towards stimulating economic growth. I think that value stocks are going to work very well here. Scarlet all right, andrew slimmon, youre going to stick with us. Coming up we are going to discuss asia. The malaysian currency, crude oil, its going to change a little bit. This is bloomberg. Lets get to first word news. For shots are being fired and whats likely to be a confirmation battle over Donald Trumps pick for secretary of state. Marco rubio says he has serious concerns about exxon mobil Ceo Rex Tillerson. Over the weekend the question is ties to russia. He is a member of the Foreign Relations committee that will hold hearings on the nomination. At the white house, president obama signed into law legislation that new investments into Cancer Research and battling drug abuse your get mr. Obama signed the measure length by joe biden and key lawmakers. Investing 1. 8 dollars in a Cancer Researcher moonshot, strongly supported by joe biden. His son died at brain cancer last year. Investigator still they still said they still cant and that pinpoint the specific cause of the fire that killed 36 people in an oakland warehouse. Prosecutors have warned that murder charges are possible as they determine whether crimes are linked to the blaze. Building department inspectors have not gone into the warehouse since at least 1986. Confidence vote has been one in italy. Was 368 tor house it 105 in favor of the new government. Outlining the agenda to lawmakers earlier today, he is hoping to have his government in place before a European Council summit on thursday. Global news, 24 hours per day, powered by 2400 journalists and analysts in 120 countries. This is bloomberg. Scarlet . Thank you so much. Andrew, i want to take you on a deep dive into the bloomberg. Reminder the can find the charts on the bottom of the screen. Usually emerging markets are supersensitive. Well, things typically strengthen. That is what has happened for the most part for the last five years. Let me just stress this up to five years. Hold on one second, there we go, five years. You can see that it has moved in tandem. Switching past one year, it has changed a bit. Break downtarts to the relationship late in august, early in september, when treasuries began struggling. Do you go about differentiating emerging markets when the dollar seems to dictate everything . Thats a great question. Thats a misnomer. People assume it will go down at the dollar goes up. The answer is that Commodity Prices usually we can and thats not very good for emerging markets. I think the fact that Commodity Prices have stayed high is going to support the emerging markets index is, even though the dollar benefits. Some of these divergent sees that have appeared since the election may start to close in the favor of emerging markets . Stocks, yes. Im not worried that this is the start of the end of emerging markets for that reason. I want to go into the bloomberg and show how dramatic the shift in sentiment has been. How many shorts of debt, it absolutely exploded. People short of u. S. Treasuries at the highest level since 2014. The line just shot up at the end. What do you make of how quickly people have reassessed everything . I think this speaks to what youre talking about in the first block, people looking at his win and telling a completely new story. It is remarkable the degree to which people were like come on, they have a completely new story to tell about inflation, growth, and the fed, that would have been weird a few months ago. Andrew im not a fixed income manager, but my response would be that people were not focused on the fact that the economy was recovering. There was a lot of data out there saying that the economy had recovered. The flip is that they were too consumed with the election. Said another way, im not convinced that if Hillary Clinton had been elected president , we wouldnt see some of this also coming to fruition. What about the focus on politics now . We have this fed decision tomorrow. Everyone is still consumed by trump, reading the treatment tea leaves, seeing if hes going to name a company. Our people still too focused on the significance of the administration . Andrew this is a good time to own stocks. If i had contemplated taking gains, wouldnt you push them to next year, when there was a chance that cap Capital Gains would be reduced . Why would you sell in the last four days of the year . I agree, the market looks overbought. The fed comes out and raises, maybe the market just walks away or continues higher until we get into early next year. Joe scarlet but there is always headline risk as well. Donald trump could tweet about company stockour crashing. Have you manage that . There hasrst of all, been very extreme reaction in certain sectors. On the one hand you can scratch or had, on the other you can take advantage. Some of the industrials in my opinion ran away with too much. To the extent that they are making some adjustments . Yes, but we sought with defense stocks. We made a tweet and there was risk to the margins and is come companies. You have to be aware of what hes saying and think about what industry will be affected. The was interesting what you said a second ago, people waiting to sell their stock to see it there is a Capital Gains tax reduction. In the past when there has been expected change in the Capital Gains rate, was there some evidence of a shift . Andrew yes, thats a great little typically for the middle of december through the First Quarter, all the losers of that year start to rally. Because everyone gets their tax loss selling in from november to the middle of december. That is when the stock start to recover. All of the leaders the people wait for it at the beginning of next year, that is why the laggards tend to outperform the leaders from right around now until the First Quarter. Joe . Hers and. Scarlet all right very interesting. Will lookll right, we for financial to underperform for a little while. Andrew slimmon, thank you. Up, trump us picked for secretary of state is drawing controversy. This is bloomberg. Joe whatd you miss . President elects pick for secretary of state is drawing criticism from some, others like Vladimir Putin are doing him praise. Wayne. Us now, alex is there really going to be a fight over this in the senate . Or is everyone just going to come around . Alex the kiss of death for mock set moscow, right . Gets to thermation Foreign Relations committee in the senate, he will be confirmed. The guy to watch year is marco rubio. Little marco, if you remember his devastating nickname for him. To change sides and join all the democrats on that panel in voting against tillerson, the nomination would fail, that is how closely the committees are divided next year in the senate. If he gets to the floor, i think hes going to be confirmed. Scarlet another question is how much the democrats extend their firepower on this. Alex right, Hillary Clintons former press secretary said that they should save their guns for steve nation. There are lots of guys that trump has nominated that democrats might want to target. Pruitt, from oklahoma, the incoming epa chief that doesnt believe in global warming. Tom price, will be a secretary at hhs, human services, and about opponent of obamacare. These are guys who might be more objectionable than tillerson, as long as tillerson can convince senators that his russian connections are not going to be problematic as secretary of state. Another name that we got, rick ary to lead the department of energy. Everyone is going to make a joke about that. The more interesting angle that people are talking about is how the department of energy is more involved in science and Nuclear Physics than it is oil. Texas is an oil state. But if oil is not really part of the gop purview, what is he doing at that department . What is the logic behind rick perry . Alex i think that this is a loyalty appointment from trump. Rick harry dropped out pretty quickly to endorse trump. This is the spot hes going to get. I kind of feel like his background would make them better suited for the agriculture department. As you know, the Energy Department is really a science agency. Its biggest job is to maintain the countrys nuclear arsenal. This will be the first time in several years that that department is not led by an actual scientist. Scarlet yeah, that would be a change. Of all the different nominees, which of them are the most vulnerable to not being confirmed by congress . I dont think that to alex i dont think that tillerson is a sure thing at all. Bill gates and Condoleezza Rice work for a firm that represented exxon, so i dont know that their public support is entirely credible, im afraid. Hes not going to get a free ride. Next on my list would be the Oklahoma Attorney general, pruitt, for epa. Hes a guy that i think democrats will be happy to go to the mat over because of his views on Climate Change and how much that issue distinction the Democratic Party from republicans. As is as mentioned, tom price. You. Todays a good day for you were going to os a dollar if mitt romney got the nomination. You are off the hook. The question is, was this entire thing an attempt to humiliate romney and string him along . Or was he really in contention . Alex look, at the least, donald trump is now neutered mitt romney. He can no longer credibly resent himself to the American Public as an opponent of trump. As someone who will criticize trump for his policies or behavior in office. Mitt romney is out of the game now. I dont know about humiliation, but he is certainly neutered. Pretty brilliant play. Thank you very much, alex lane. Counting downe the hours to fed decision day. We have a chart for rate hikes that are near certainty. This is bloomberg. 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Today for a variety of reasons, capital regulatory reason, the Competitive Landscape has changed pretty dramatically and were as uniquely positioned as we have been in the Competitive Landscape. As i look forward into the future yields of Goldman Sachs, its as exciting as ive ever seen it. Cohn will head the National Economic council, among the most influential panels inside the white house helping coordinate and develop the president s economic programs. And president elect donald trump had a meeting with microsoft cofounder bill gates at trump tower. The spokesman said mr. Trump wants the u. S. Getting back to being innovators and inventing and making things in america. 20 million adults and more than three million children have Health Insurance because of the Affordable Care act. A council of economic advisors says the rate dropped in all income groups since 2013. Global news 24 hours a day powered by more than 2,600 journalists and analysts and more than 26 countries. Joe. Joe thanks. We have breaking news here. Wells fargo for the second time has failed a feds living will test. Of course, this is a postcrisis regulation. Banks are supposed to give a plan for how they would wind down the event of a failure. This is the second time the fed that wells fargo has failed in the regulators view to come up with a specific plan. Theyre going to resubmit their plan by march 31, 2017. In the meantime, wells fargos prohibited from establishing International Bank entities or acquiring any nonbank subsidiaries. So once again, wells fargo, for the second time, has been rejected by regulators. The living will plan has been deemed inadequate. For markets overall today, rallies once again into the green. Dow within 100 points. 20,000 ahead of the big fed meeting. Speaking of which, scar, youre standing by with a preview . Scarlet thanks, joe. In terms of what you missed, its been an almost 12 months for the fed liftoff. Theres been lots of talk and no action. Janet yellen and the fed are poised to increase Interest Rates once again. Lets take a look at the chart in todays numbers dont lie. The market is pricing in 100 odds that policymakers will raise rates on wednesday. What youre looking at here is the fed funds futures. The orange line indicates the odds of a quarter point hike. Its at more than 90 . Actually came down from 100 because the likelihood of an even bigger hike of 50 basis points, that is the blue line, is starting to creep up. Its now less than 10 . Now, the fed stresses its data dependencey. Well, the Economic Data looks Strong Enough to withstand another rate increase. The releases have been topping estimates at the fastest pace in two years. This is a bloomberg u. S. Economic surprise index, the orange line. Its certainly gaining and helping fuel the equity rally that joe was talking about as we get ready to close out the year. One of the feds two mandates is to manage inflation. Its saying the last few years where prices reached 2 . Thats the yellow horizontal line there. And you can see how various measures of inflation are coalescing around 2 . You have core pc8 and core c. P. I. , the orange and blue line, about 2 . The markets are pricing in a ramp up in inflation. Look at the break even rates for the 30year. That is the white line. And for the 10year, that is the orange line. They measure marketbased inflation and both lines spiked since the u. S. Election. Now, in addition to inflation, the feds other thing is unemployment. Thein Unemployment Rate for the 35 to 44 age group rate and the orange the prime age. Both are trending higher since the crisis. Finally, well find out how the positive turn in Economic Data will affect the famous dot plot. This shows projections since the live meeting. You can see more of a convergence where they see the trajectory of rates, the orange line, and the market anticipates, the pink line. Beyond the Rate Decision well be tracking the feds Economic Forecast and language tied to the characterization of the economy. Be sure to follow bloomberg starting at 1 00 p. M. Tomorrow for the full coverage of the fed. Joe. Joe for more now on decision day for the fed lets bring in priya misra at t. D. Securities. Not even going to talk about whether theres going to be a hike or not because everybody assumes thats a done deal. Whats the number one thing beyond that that youll be looking for and expecting tomorrow . Priya well, the dot plot. In terms of 2017, the dot plot as of september have two hikes. Is there some shift there . In my view there wont be a shift. The fed will talk about gradual two hikes there. There the shift markets there the markets will react because it complies the fed height hike sooner. The dot plot is important. I think it will stay. I think the market will focus on Forward Guidance the fed has been providing. Do they start changing that . And i think most importantly in the press conference, how does janet yellen sort of handicap Monetary Policy Going Forward now with this potential for fiscal policy . Well try and understand the fed reaction function because we have uncertainty around fiscal policy. If we know how they will react we will be able to calibrate market to that. I think that will be a little bit nuanced in the press conference but we will be focused on that. Scarlet how do you think it will show up in the dots of the Economic Projections . I was talking to peter yesterday. Expect the numbers to broaden out because we dont know how it will play out. Priya i can see it widen and compressed. We heard this from the new york fed president the other day, what fiscal policy so far tells him is the Downside Risks are reduced. So i can see some of the lower end of the dot plot actually moving higher. For the high end, i actually think they are already fairly high. You may have to become more optimistic for them to move it above. I think you can potentially see a narrowing of the range in the dot plot. I think if there was more of an inflation feel or if we had realized the labor markets were completely closed, i can see inflation is they are not back to the average over the last 10 years. Theyve certainly come off the lows. Again, the Downside Risk of deflation is gone. Now were talking about how much higher inflation risk there is. Joe lets talk about the market because weve seen a pretty remarkable jump in yields. The rise started the summer but its been pretty dramatic since the election. And i think the question that really matters is, is this just another sort of cyclical upswing in yields, the long decline that weve seen over he last 30 years, or is this a meaningful shift to the trajectory that weve seen for a long time . Is this it, so to speak . Where do you come down on arguably the biggest question in markets right now . Priya i have seen the rise in rates over the last few years because you look at it last year or what we saw before the election was typically Central Banks reducing accommodation. To me if you get that its almost like the baton, i want to shift the baton but i dont have anyone to shift it to. So its like fundamentals are not changing. All you were getting was Central Banks to pull it back which could not be sustained. Therefore, any increase in rates was a buying opportunity. To me the election and i think its not just the election of president elect trump. Its also the fact you have a republican sweep and you have now significant unity among the republican party. So the ability for president elect trump to actually get fiscal easing done is much higher today than it was even, i say, even before the election. Even if you believe he was president , divided government would have made it really hard. I think now Monetary Policy might be stepping back, but they have somebody to pass the baton to. We did change our rate focus. I had a lot of pushback initially where people felt 275 which is our where we can go, seemed high on the 10year. Now i am getting pushback saying we can go 3 1 2, four. Thats back to the new norm. I have not changed as much. I think global rates are still low. I am not sure if were changing. Is productivity going to change longer term . I hope im wrong on this. I hope we do something on infrastructure. If that does not change, we are not going to get a sustained rise to 4 on the 10year. But i think the move, i am not feeling it up beyond 3 . I dont think the longterm Growth Potential will change. Joe ultimately there are structure fact ures in pace you are not ready to change yet, there is this fiscal impulse and that will change the story a bit but the big things that take a long time to change not enough fundamental change there yet . Priya yeah. A lot of the downside has been taken out. We are getting fiscal easing. We have not had fiscal easing close to but demographics, productivity, these are global rates. Look at the difference between treasury between treasuries and bonds. Its really high. That will cap the move ultimately where investors will say, why am i buying 10year . Let me move into treasury. I dont think the move is happening yet because we will see where the 10year will stabilize. Ultimately that will cap. All of that has to change i think before you can get the second leg higher. Scarlet speaking of rates and where they could go, one is is holding a webcast and said if rates go to 6 presumably the 10year in three to four years there would be a big expense problem. 6 would get us back to early 2000 which seems like a lifetime ago. There would be an entire generation of investors who have never seen 6 rates. How big of a problem would that be . Is it going to be an expense problem . Is it going to be how do you find it . How do you deal with the invest problems . Priya there is a good way you can get to the 6 problem. Were growing better so we can handle all that trajectory. If we get to 6 i hope thats where were getting. We have immigration overhaul which improves the demographics. Were able to invest inrd. Thats how we get it higher. If the Public Sector goes out and invests in something that changes productivity, if you get g. D. P. Close to 6 , then Interest Rates rising, yes, we have a big debt problem. The other way is what is what would keep me up at night. If you get the 6 without the improvement in growth, all youre doing is creating perfect scenario for the next recession because the way you can get that 6 is an inflation increase but also real rate increase and i dont think the economy can handle it. Most sectors will get hurt. Certainly the debt problem. And then you brought up investors. Duration risk in the market is much higher today because at lower yields, duration is higher. I think we havent had this Interest Rate shock. A lot of people think were in fixed income and safe. And Duration Risk and thats a problem. Joe not necessarily riskfree. Priya misra, head of global rates strategy at t. D. Securities. Scarlet you want to check bloombergs coverage of the fed decide that begins at 1 00 p. M. Eastern. We have a full roster of economists from bill gross to glen hubbard and alan to weigh in on the first rate increase in more than a year. This is bloomberg. Joe whatd you miss . Another step to tighten and reduce capital outflows, i sat down with bloomberg have you columnist kris balding of the concern of chinas outflows. Christopher we will see 925 billion worth of outflows out of china. Theres probably about 340 billion of netrd outflows were seeing this year in dollar terms thats not showing up in offshore centers like hong kong and taipei. This is a big concern and every month it seems like theyre releasing some new capital tightening measure that simply isnt having the impact that people expect it to have. The primary concern should be that even though theyve been releasing these measures on a near monthly basis it really hasnt made much of a dent and in fact well have almost another trillion dollar outflow in 2017. Joe where does it go next . Strongle capital outflows or is there another policy approach that could actually work to stem the underlying causes of the outflows . Chris well, i think it is very likely youll see more policy responses in 2017. Just about two weeks ago, they announced the tightening so that all capital account transactions over 5 million had to be approved out of beijing. Theres also i think the very likely possibility that in 2017 at this rate within six to 12 months theyll place additional restrictions on current account transactions which they liberalized back in 2012. But they are increasingly worried. The fundamental problem is that the chinese economy is very weak. Its dependent upon stimulus, and International Investors are much more savvy about china than they used to be and they simply arent interested in placing their money in such a highrisk situation. Joe you mentioned dependent, the economy being dependent on stimulus. Is china in a catch 22 where if it, you know, spends more money on stimulus to keep the economy going, thats just money that tries to eventually find its way out the door . Chris thats exactly it. As long as they have been stimulating the economy through monetary and fiscal channels, weve been seeing an enormous amount of this money leave china. And in fact, the pboc has said a number of times they are using different channels to provide monetary stimulus that they believe will not end up in china outside of china. I think all evidence points to the contrary that this money, no matter how they provide in additional liquidity, is ending outside of china. Joe lets shift gears to the u. S. China relationship, which is already in the spotlight with the Incoming Administration in the u. S. Donald trump hinting that the one china policy could be contingent on some sort of new trade deals, new trade discussions. How is china likely to respond to these noises . Chris this is absolutely crossing a red line for china. This is not something that they will take lightly at all. They were probably willing to tolerate the phone call to taiwan. It seems very reasonable from a policy perspective for the incoming president to push china to open up its own markets, which are incredibly closed, for both investment and trade. However, discussing the one china policy and even disavowing it as president elect trump seemed to do, that is absolutely crossing a red line for china and not something they are going to take lying down. Joe so what are some plausible responses we could see to this . Chris china is very savvy. So far their response has been relatively measured. More nationalistic papers have referred to trump in less flattering terms. But what is more likely response from official china, if to start something small. Maybe canceling some contracts. Slow walking certain trade deals for companies or approvals, things like that. I dont think its likely theyre going to respond in a big way, and partially because they understand the sensitivity of this. Theyre going to want to push back but not shove. Joe how does this end up playing out for taiwan . I mean, the Current Situation roughly stable. Everyone sort of recognizes, acknowledges the status quo is sort of stable status quo. How could things turn out for them . Chris i think taiwan is very understandably somewhat worried about this situation because as president elect trump alluded to yesterday, hes essentially using them and taiwanese democracy and human rights as a bargaining chip in trade negotiations with china. So this cannot seem, if youre taiwanese, to be the most loyal of allies thats offering you up like that. So this will be worrying to the taiwanese. Joe so even on citizensibley its a more favorable view of taiwanese sovereignty it could end up being a negative . Chris absolutely. Because, you know, trump is proving essentially to be a fair weather trend on this issue. It seemed to be that he was tentively backing them by talking to the president , but then essentially backtracking and saying, id be willing to trade to discuss the one china policy with regards to a better trade deal. That cant make the taiwanese feel very good. Joe that was chris balding, Bloomberg View columnist, an associate professor of business at the hsbc business school. Scarlet coming up, mohr stepback for wells fargo. Well take a look at what it means if the socalled living will is adequate. This is bloomberg. Scarlet wells fargo failing for the second time this year with the living will. They could not persuade that without reeking havoc on the financial system. Joining us is Jesse Westbrook from washington. It looks like wells fargo will have to go back to the drawing board. Does it make that much a difference for the bank itself . Jesse well, it can if they cant fix the deficiencies in the next few years. Under doddfrank, its potentially breaking up wells fargo, so its quite a red flag. It probably sends another signal to investors who are already sort of put off by the phony account scandal, that this is a bank that cant really get its house in order. So as you point out, no immediate severe consequences, but pretty severe consequences if they cant picks these problems within the next couple of years. Joe jesse, theres a new administration coming. Theres talk about regulatory rollback, regulators who are staffing these agencies may be less aggressive. If youre wells fargo, why not sort of run out the clock and see if we cant get past this without having to do anything . Jesse well, that is a strategy, running out the clock might not always work. We dont know exactly what trumps perspective on too big to fail banks will be. You know, there is sort of bipartisan agreement among republican and democrats that there are still banks that are too big and could threaten the economy, the financial stability, etc. , if they fall. Wells fargo certainly fits in that bucket. Now, whether they would get a reprieve from a fed overseen by trump appointees, thats an open question but fair question. Scarlet very quickly, jesse. We only have about 30 seconds left. What are the consequences in the near term if wells fargo does run out the clock . Are there any . Jesse theres a few. There are more hurdles toward making acquisitions both internationally and domestically. Wells fargo probably wasnt in much of an acquisition mode anyway considering some of the restrictions placed on them after the settlement over the bogus account scandal. It is a hurdle. Joe thanks very much. A very quick dont miss this because we have the fed decide special tomorrow starting at 1 00 p. M. Eastern time in new york. Of course, the fed announcement will be at 2 00 p. M. So huge day ahead for us covering the big event. Scarlet that does it for whatd you miss . Thanks for watching. Joe have a great evening. This is bloomberg. Youre watching bloomberg technology. Lets start with the check of your bloomberg first word news. President obama signed legislation for new investments in Cancer Research and battling drug abuse. Mr. Obama signed the measure at a ceremony flanked by Vice President joe biden and key lawmakers. The 21st century cures act invests for a Cancer Research moonshot that is strongly supported right joe biden. The Obama Administration is terminating some sales of military arms to saudi arabia. The senior official tells the ap that there are concerns about the killing of civilians in yemen by saudiled coalitions. President elect donald trump plans to make Rex Tillerson the next secretary of state and that could give the keystone xl pipeline a leg up. If approved the exxon mobil chief could approve the permit that is a requirement for Energy Products projects that cross the international order. Rejected thema pipeline in 2015. Joe manchin said he will be staying in the senate and not taking a job with resident elect donald trump steam. The democrat said he was humbled