Healthy dose of ed hyman. Sharpied, black markings, shut up and read this, that is what he says in his required read. Required listening for the new year. Great to have you with us. When you get the black sharpie out and you are standing at your desk on fifth avenue, what are you marking up with the greatest intensity . Ed i hate to disappoint you, but now it is all electronic. Tom what are you circling the most right now . Ed what i am circling the most earnings. We can have a good conversation , but at the end it is all about earnings. Earnings right now, bottomup analysts, not from me, are at 145 for the Third Quarter of next year and that is without tax cuts. At about 10 and you get 155 and if you were to go three years with growth 10 you get to 200. Those are huge numbers and i got through doing an exercise , watching the game tape after khe game, and every market pea was down, now they are going straight up. Tom it is the Little Things we see through the quarter, through months, through the year of the bloomberg terminal. The other a honeywell, organic growth of 7 are 8 . Are the earnings coming next year from the top line of unit and price combined into revenue or are the earnings going to be manufactured by executives down the income statement . Ed the most exciting thing is synchronized Global Growth. People are making money everywhere. South america, europe, Eastern Europe china, japan, and sync synchronized Global Growth is what is making earnings good now and could make them really good next year. That is the main force, not so much manufactured as they have been, but you can buy a lot of buybacks with the tax cut. Tom that is where i want to go is the use of cash. Is the methodology of corporations going to change in their Financial Engineering or is there still that pressure, i got to perform . Ed they got to perform. I am looking for next year to be the start of a new decade. We have ended a decade of the postfinancial crisis 10 years, it started in the summer of 2007. I am looking to see if things change next year. Like the tax cut, earnings get to be better, maybe wages accelerate. The rates could go up as it gets better. I am looking for the next year to be different than the past decade, which has been slow and steady. Which is what i have been focused on. Tom it is the beginning of a new decade and making the headlines throughout december and the campaign and his first day in office, mr. Trump often suggesting says a run rate of 3 and often says 4 economic growth. Is that rhetoric, or do you have a belief that we could get back with your decade to that kind of gdp that leads to superior earnings . Ed i am not a first responder. I will wait until i see it. So it looks as though the Fourth Quarter gdp is going to be 3 . That would be the third 3 quarter in a row, the first time in a decade that you have had three threes in a row. Retail sales are spectacular for november. They are up almost 6 for a year on year basis for november which makes a fourthquarter look better. In the First Quarter you start to get tax cuts, maybe lifting confidence and spending. I have that and then we do these Company Surveys, they are consistent with 3 growth currently already. And then i have an econometric model and it is forecasting 3 growth. None of this has tax cuts in it. I think 3 is the right number to go with right now. I would not rule out 4 if you get the tax cuts. Tom we have the luxury of having you for a halfhour. Lets drill in on one of the secrets of your report. You go by it and your Company Surveys are acclaimed. I think of Alan Greenspan and his focus on the granularity. What do you see in the companys surveys right now that gets your attention, is a trucking, electric usage, what is it . Ed you have screwed up my life. Tom i have . [laughter] happy new year. Ed there is so much news out there. I started out doing the weekly report. Then i went to a daily report. Im doing 2 reports a day because it is hard to keep up with you because the news is there. On the Company Surveys, they have been moving up. They are 54, they were 48 at 48 they are consistent with 1 growth. 54 now, 3 growth. The most exciting thing, we will have to see if this lasts for the duration of this interview. The duration of the way that you time, is thatver our survey of retailers Pricing Power had been going up for two years. Time it is still very weak, 28, 0 to 100, and the last two weeks i will get another reading tomorrow, it went to 30. Tom it is a little bit of a lift. So it is upfrom 20, a fair amount. Mentioned, upi 5. 8 . That is in nominal terms. It includes price. That is the main thing i noticed. The strongest story we have is cap goods. Tom lets go to cap goods. You have seen one of the stories for 2017 was real challenges at General Electric. Maybe that was the purchase in europe and their capital goods problems and power supplies. Do you finally see capital investment, and with it the Pricing Power at the top line, the confidence that comes in Pricing Power away from retail . Ed yes. This week, or just recently, they had the nfib come out. 3 points. I dont know if it is a record high, but it is close. Tom it is a jump condition and confidence. Ed jump and it has been holding and then had a threepoint jump. That affects small business. Yesterday, they had the duke fuqua survey. This is ceos of major companies, both of them are up and every single survey that we do, every data point i see like durable goods, cap goods shipments, they are all up. So cap spending is stronger than i thought it would be at this point with operating rates below 80 . Tom your offices are right down the street near the abode of the president. Can you give him credit for a confidence boost or is this the percolation of good news on the American Economy begin before the election . Ed im sure a lot of it started before the election, and this is such a charged topic, as you and i know from our friends. Business people i talked to say i do not know what to make of trump, but it is the most is this friendly environment i have been in in memory. And then you have the deregulation and the tax cuts. I think it is understandable from those points of view plus synchronized Global Growth worldwide is this confidence is up. Tom tell me about the stock market and how you deal with it. It is not just about ed hyman. There is a team of people linking it into the markets. Do you have an enthusiasm about dow 24,000 and 30,000 or whatever the number is or not . Ed i am the least guy in my company. I am over the hill and they just put up with me. On this topic there are a couple of interesting things i will share with you. Tom please. Ed we are going for the first perfect year ever. So 2017 right now, every month for the s p has been up. That has never happened. Every january, february, every month is up. The last time he came close was in 1995, we had one month down,. 4 , and it was followed by 1996, which was a 20 increase. It is always about earnings. I do not have a strong view about how much market will go up next year. With earnings up, the stock market will go up as well. Tom there is always surprises in december and autumn, we saw mr. Murdock jettisoning some of fox over to disney. And many others we have seen. With mergers and acquisitions. Are they a good thing for america, are they a symbol of a good time ahead to see the larger synergies . Ed you have to focus on it. You have to ask me what i think about it, and you need to think about it, and those are the two big ones. 50 billion apiece. They indicate there is a lot of liquidity in the system and it is being put to work. You can have money, but scared to put it to work. They have the money, they are putting it to work and it fits with da vinci and bitcoin. Those juggernauts. But those two in particular, when they happen like on the fox disney, they are going to cut out 700 billion in costs and 700 billion in efficiency. Tom i notice that. Ed when youre on the receiving end about efficiency you are worried about your job. Tom we are going to come back and be efficient with ed hyman. There is so much to talk about. There is a vacancy of a vice chairmanship at the fed. Vice chairman heiman . Does that work . Stay with us. This is a special edition of bloomberg surveillance. Tom welcome to a special edition of bloomberg surveillance. A look forward to 2018, and we do that with ed hyman terrien right now, we talking about the larger view. Let me go first to this important quote and every time there is an important report there is one phrase that sticks out. We will do bitcoin in a bit. Inflation mia. Whole foods was selling a 38foot three on the Upper East Side of manhattan for 38. The same tree was being sold by Street Vendors to tom keene for between 150 and 220. Amazing. I was the idiot on the street buying the tree. What is the symbolism of an overpriced tree on the Upper East Side and amazon whole foods . Ed amazon whole foods, there are at least three downward pressures on inflation. Technology. Competition, like whole foods in the Street Vendors. And globalization. They are very strong and they are keeping inflation down. Lifecam, it is sold on amazon for 20. The competitive similar problem is nest. I could not believe it. I went out and bought two, he said. There is a lot of pressure on inflation. Including the mergers we were talking about. I looked back, and in the 20s you had 4 growth and zero inflation for the last five years. Of the 1920s. And the stock market tripled. Tom you provided leadership to the Economic Club of new york. You sat through countless rubber chicken lunches listening to worthies of central banking. Do they have a clue what they are doing . Is there a foundation to our central bank work or are we making up as we go . Ed it is differently both. There has been a complete revolution in central banking over a greater time, introducing zero rates and global qe, ecb, bank of japan, the swiss bank, comic books 50 basis points. , this is wild. Within that, and within the wildness of it, we have a plan for 2018. What will you look for from chairman powell . Ed i assume it will be a also if hen, and gets too aggressive, he will get a tweet. There will be some pressure there. Tom there is low rate donald. Are you low rate edward . December 13, we saw Charles Evans of chicago dissent along with neel kashkari, he is in his own orbit, we all agree. Was here, he would agree with us. Would you say we need to be careful about hasty rate increases . Ed no. From what i can tell, and i am not trying to be nice to the fed, but they are doing a perfect job of setting us up. They raised rates this week, and we are already for it. There was not a Single Person that would have objected. Every rate increase next year will be the same way. Whether it is 2 or 5. Tom you do not care about 2, 3, 4, 5. You are watching the preparation. Ed each of those will be associated. Lets say they are five. Way beyond what is likely. If they are five, you will get a 4 gdp number, you will get some big wage increases, the employment rate will go below 4 . Oh you needill say , to have the funds rate close to three. We will be prepared for it if we get there. The funds rate is 1. 5. Inflation is 1. 5. We still have a zero real funds rate. Tom do you have a confidence that if we go away from qe to qt, some sort of our tightening, we can do it with stability that is good for american industrialists and good for the American Population . Youre scared to death of qt. Why . Ed i have never been through it. Neither has anybody, neither you or powell. They will approach it very carefully. My view is that reducing the Balance Sheet is the same as raising interest rates. And in the past, the stock market has gone up when they have been raising rates. It has gone up until they finished raising rates. I will watch very carefully but this is a wave out. You have to look on a global basis, you have to look at ecb, boj, and the fed. Sheets innce aggregate will not start coming down until 2019. We are still going to keep adding liquidity. Tom in ed hymans new decade, will it be a new decade of central banking . Ed got to be. We have to get off of qe. For the past decade it has been the decade of qe. The next 1 the only question the next decade kills us, but it has to be a decade in which we do it. We get the fed Balance Sheet down a couple of trillion and work down the doj and ecb Balance Sheets. Tom do you own any bitcoin . Ed i do not. I wish i did. I kick myself for not. I have a couple friends who have. They are having a good time. I think i should buy some just to be in the game. Tom top of the market. Beware. That is what we will talk about. Ed hyman with an important observation on bitcoin. It is certainly the theme of what to do with this thing . 2017, we are talking too much about it. Were not talking enough about it. Ed hyman on bitcoin. This is a special edition of bloomberg surveillance. Tom this is bloomberg surveillance. The year ahead. We are thrilled you are with us for the Holiday Season looking into 2018 with ed hyman of ever core isi. I never thought i would see ed hyman worried about bitcoin. Observing what it means within the mix of his economics, his finance, his investment. You say it is a canary. Is it a canary in the goldmine . In the coal mine . Ed it is a canary in a coal mine, but i misstated it. It is an indication of all the liquidity in the system. It is not an indication that we are about to die, which is the canary in the coal mine. Tom fair. What i see is basically incredible liquidity in the system so you have qe, rates are low, and money growth is rapid. You get Something Like the da vinci, 450 million and then you have these deals that happened like the foxdisney deal my and then you have the bitcoin. Dont you get it . There is something bigger than any of us right now going on and then you see the stock market going up and up. Of course excess money can buy , bonds. That is why bond yields are so low. The price is up. It is that simple. Within this is the religion of many decades ago, it was a thursday the world stopped for m1, m2, m3. If you see a lot of money sloshing around, that is the liquidity of the moment, how do we escape from that or is it something we should not be concerned about . Ed escaping from it will be i am pretty bearish longerterm. Im not going to get in front of that for the short term. In terms of the money supply, i met Milton Freeman when i was 23 and i fell in love with his thinking and his intellect. Now i have decided that excess money is creating excess supply. Not excess demand. It has almost become deflationary. That is the odd thing about what is going on right now. Tom in the time we have left, i want to look back decades and all the political tumult we have seen through the election and the elections in europe as well. Are you optimistic about american exceptionalism, your optimism on earnings, that is a corporate thing, or optimism on a central bank that can get out of qt, maybe . Do you have an optimism about america . Ed the way you ask it is a little bit not the way i think but i am a very strong observer , of what i see right now. Which does not tell me necessarily what will happen in five years, but when i travel around the u. S. And you and i have talked about a most every place i go to is booming. Boston is doing great. Minneapolis is doing great. Seattle, and san francisco, and l. A. , washington, d. C. , atlanta, and all these places that i visit, nashville, des moines, iowa. Salt lake city. The u. S. Is doing better than a lot of people think, and with retail sales up 5. 8 yeartoyear i am going, yes. That is what i see. An Unemployment Rate of 4. 1 , that is what i see. The u. S. Economy is doing well. This is the first tax cut that is being applied to a strong economy. Tom it is unpopular with the public. Is the tax cut a good thing for viewers and listeners . Ed it is good. They said it will increase the deficit by 1 trillion or 1. 5 trillion, so i guess that means it will put that much money into the economy. I think if they do that, it will be good for some pieces of the economy, the corporate sector. We have had tax cuts since seven kennedy. Including kennedy. The average Unemployment Rate was 7 . Tom we are lower than that. We might get a three this year. Thank you. A view forward to 2018 with ed isi, theircore chairman. That is it for our yearend look on television and radio. Thrilled you have been with us. Do not forget all of our work in 2018, where we will look at the best of economics, finance investment, international relations, and local politics. And global politics. Have a great 2018. Tom in this half hour, a conversation with Mario Gabelli on investing on value. 2017 and began 2018. You will only make singledigit returns. Year,fter near year after the reality of good, and outstanding doubledigit returns in the stock market. On investing, on value, mustlisten worldwide, Mario Gabelli. All part of the bloomberg surveillance year end special. We talked to your partner in crime the other day. Whos counting . Like youe optimist stay invested when year after year there is a theory in certitude that we are going to grind out singledigit returns . Mario that is a great question. When we look at a company, we are not buying a stock or did we are buying the business. How is the business run . How does the management come to theiro make money for shareholders . How do they deal with the cash flow . What will the company be worth in five years . We gather the data, collect, and interpret. We say, where is our margin of safety . Some years we are going to be down. We had been down forfive years. Tom what is your worst drawdown ever . 30 . , october 1926 of 1987, the markets were down 30