winter white house, mar-a-lago. documents were due to be released today in 1992, but 114 of nearly 500 files from the prime minister's office that year are being held back. 12 of those relate to european policies. global news 24 hours a day. this is bloomberg. ♪ bloomberg world headquarters in new york, i am julie hyman. joe: and i am joe weisenthal. scarlet fu and julia chatterley are off today. but the question is "what'd you miss?" trump suggestst that the post office should charge more to deliver amazon packages. and we have the chart that you cannot miss about next year's big moves in the market. california has- legalized marijuana january 1, but citizens in two of the biggest cities may have a bummer. when the senate gets back to work january 3, democrat doug jones of alabama will be sworn in. things will shift into full gear when the house returns on january 8. both chambers will have to tackle another government shutdown deadline and president trump will give the state of the union address january 30. joining us to set the stage, it and the adjutant in washington edgerton in washington. i want to look at the reform of the welfare system. it seems that paul ryan and mitch mcconnell are not necessarily on the same page there. reporter: that's putting it mildly. i think there is broad disagreement between what house republicans in senate republicans want to do or recognizes actually possible. it has been described by paul ryan as the second part of his plan to reduce the deficit. in itself willl add $1.5 trillion to the deficit over the next decade and he says part of that will be made up by faster economic growth, but the rest of that and the way to close the yearly deficits the united states runs is by reforming government spending, most of which will be mandatory spending, which is welfare, medicaid, medicare, some of those mandatory programs that are not regulated by the appropriations process. , obviously the immediate concern in d.c. will be the budget, keeping the government what about policy wise in terms of where this administration wants to go next. is it on the infrastructure side? something on the entitlement side? what's the next major piece of legislation they will likely push for? we will seek division between what congress was to do and president trump to do. i think president trump would like a big headline-grabbing infrastructure built or congress that.t worried about they do not want to spend more government money fixing infrastructure. they would rather look at ways spending,ernment especially the entitlement programs we talked about. so i think you will see a battle for the hearts of the republican party, kind of carry into next define policyto priorities going into the spring and summer before the midterm election in the fall. beie: so, anna, there could disagreement within the republican party. what about bipartisanship? is there any hope of that, or to the midterms make that all but impossible? impossible.ot anything can happen in the scrambled ideological environment we have here, but there's no real reason democrats would want to give republicans -- especially president trump -- a win. figure very polarizing in american politics and democrats are probably going to want to carry that into the midterms and make that a big part of their elections in 2018. there is no real reason why democrats should work with republicans now, especially after republicans rammed through this huge tax cut bill in spent much of the day trying to repeal and replace the affordable care act. oe: so has the 2018 midterms basically begun? it is hard to get anything done the year before midterm. but republicans are fired up. they had this big legislative win with the tax cut bill to end the year. i think they will try to capitalize that, to realize if they want to publish other conservative priorities, it would behoove them to do that this year. they don't know what is going to happen in 20 18. if they lose their majorities in the house of the senate that will make it really hard for the stars to align in the house and senate to ram through some of these conservative priorities like entitlement reform. julie: organizationally, where to the democrat stand going into next year? ina: democrats are united their opposition to donald trump, but that is where their unity and's. there is disagreement how to approach immigration protections for people brought here as young people, the so-called dreamers. and there's no real clear path on how to handle that, how firm to be in that negotiation with republicans and when to make their stand and make that a big deal. there are some democrats that want to, you know, threatened to shut down the government over that and some do not think that will play well politically because republicans will say it is the democrats' fault that they are shutting the government down for what they would call amnesty for illegal immigrants. joe: on the left it does seem that there is an appetite for the immigrants to really play hardball over daca, even if the leaders do not want to fight over it. will be rank and file of the party, the grassroots, force them into making a stand here? anna: i think you will see that with rank and file democrats in congress, and also in their base. up a an issue that fires lot of their voters and supporters and you really need that base to be energized going into november if they have any chance of taking back the house or the senate. and they do not want to do anything that is going to diminish the energy behind -- #resist movement, trying to resist all of trump from policies and the president's effort to roll back everything president obama a published in his eight years. julie: thank you for joining us. thank you. coming up, looking at the rise of shale and how it has transformed the global energy market. from new york, this is bloomberg. ♪ julie: it is time now for the stock of the hour. amazon is having his worst day in more than four weeks. this comes on the same day that president donald trump says that the postal service should charge amazon more to deliver packages. it is the latest criticism of the online retailers and its billionaire founder. joining us, alex wayne. how seriously should we be taking this question mark i assume amazon gives a lot of money to the postal service paying the normal rates. any investorink should take this tweaked seriously at all. the president does not control the rates the postal service torges, and if they tried charge amazon more, they would probably go elsewhere. they are delivering -- they are developing their own delivery services like drones. i think they could deliver a different method if the postal service upped their rates. but is the postal service losing money and is that a de facto government subsidy to amazon? they could launch their own thing, but they would have, you know, they would have to spend money developing that. two different questions. they are charging enough to cover their costs, but whether it's a subsidy to amazon is a different question. amazon would probably have to pay more if the postal service did not exist, but at the postal charged rates closer to fedex and ups, amazon might very well find a cheaper method, doing it itself or some other -- knows? i don't know if it is fair to call it a subsidy. julie: and if they raised rates on amazon they would have to raise rates on everyone, and there would be other consequences of that. this tweet does not mean the postal service is going to raise rates, we will know the animosity the president appears bezos andwards jeff amazon as a result. are there other realistic ways the government can make life difficult for the company? alex: in an earlier segment, the idea that might ease some sort of antitrust investigation of amazon came up. i have not heard any actual talk of that. i don't think the ftc or doj is looking at that. i don't think there's an actual complaint about that right now. but this administration has shown with the at&t deal that they are kind of aggressive toward antitrust issues, and i would not rule that out. that has to be in the back of amazon executives' minds. julie: thanks so much. appreciate it, alex wayne. alex: thank you. joe: "what'd you miss?" spoke to shale businesses and that their take on the future of the energy in the u.s.. >> will become the first president to achieve american energy independence. alix: here is what energy independence really looks like. it's the u.s. becoming a net exporter, when exports overwhelm imports. exports to billion barrels a day, a far cry from the eight billion that we are importing. it is thought we could cross the line and that has huge implications. one of those things, the trade deficit. this is the u.s. trade balance adjusted for price. in the early 2000's, the trade tweet $5as almost billion. now it is less than $10 billion. $25 billion. if you reduce that, it's good for gdp. lower gas prices means more money for you to spend, and there is one thing everyone can agree on. shale means lower oil prices. five increase of nearly ilion barrels a day of u.s. production was probably one of -- 5 billionors barrels a day of euros structure is probably one of the contributors to the lowest prices in history. alix: it was the steepest decline since the financial crisis, and now the world needs to adjust to $50 oil. >> the biggest impact on oil-producing countries is not that the u.s. does not physically need their oil, but is a losstic increase of revenue and that has been a huge source of strength for oil dependent countries. alix: saudi arabia may be able $20 a barrel, for but they need $70 a barrel to bounce the book. rise and knowices that they have not been investing, it would take five years to get up to production. this will not come about over the 20 or 30 years that people used to think about and has huge locations for major oil producers. alix: the game changer is the short cycle nature of shale. >> today, if i cut production, it takes months to get production back online. our focus is on the fast cycle nature of shale. it means that companies can juggle more when prices are high and turn off a rigged when prices are slow. being able to predict the jet fuel crisis hopes you plan, by aircraft, develop new routes. so by looking at the stability shale can create in pricing, it creates more stability in the economy and better opportunity in terms of creating more growth going forward. forced someas countries to rethink their entire economy. look no further than saudi arabia. >> they started to reduce their dependency on oil, looking future -- looking ahead to the future of the world. >> i have got to reverse costeer this to bring the base in line with shale, and i ultimately we will end up with a perfectly flat supply curve somewhere around $50 a barrel. this massive shift in the global energy market does come with risk. >> conventional oil, big oil companies like bp, saudi aramco, huge allen's sheets. they generally generate enough cash to pay for their own investment. they are pretty much independent of banking markets. in contrast, shale oil, hundreds and hundreds of small mom and pop type businesses. highly dependent on the banking sector. u.s. companies raised 30 $2 billion in equity markets and issue $24 billion of debt. many of these companies have negative free cash flow and could have for years. has a massive magnifying effect. it amplifies impact. shocks in one part of the world are transmitted to other parts of the economy by the banking system. the oil market was largely insulated because of major players in the oil market. alix: the economy saw this play out in winter 2016 when oil prices hit a low of $26. there was a credit crunch and the stock market tumbled. at some point you may see the equity market, the banking market just say, enough is enough. that is a big issue, how could the flow of credit and banking determine the pace with which the u.s. show market can grow over the next 5, 10 years? that's a significant question. whatever happens, the u.s. has changed the world. it doesn't need to use military funding from the middle east. it will never again be plagued by mile-long lines at the gas station. increasinglys using energy exports as a tool of foreign policy. >> as an industry we are very early in the explication of shale. were only a decade and. >> -- we are only a decade in. the u.s. will be up to 20 million barrels a day of oil. >> it's the largest resource that remains unplanned. >> it's like creating a new saudi arabia. quite amazing. >> i think it will make a big difference in the world. joe: that was bloomberg's alix steel. time for the bloomberg business flash, a look at some of the biggest business stories in the news. while all eyes are on the volatility of cryptocurrency leader bitcoin, another digital gains. quietly making it's the second most valuable cryptocurrency after jumping 33% yesterday, ripple is worth $76 billion passing the $73 the ua should. netflix is scrapping cash executives.its top it eliminates performance base bonuses -- performance-based for executives with a salary over $1 million. carl icahn owens 13% of sandridge. he urged stockholders to vote takeover,e proposed blasting the deal as overpriced. that is your bloomberg business flash. , 2017 has not been the best year for most companies, but that's not true for opec. we have the chart you can't miss. from new york, this is bloomberg. ♪ julie hyman. "what'd you miss?" discussion about what companies are going to do with their tax savings. we'll more go to buybacks and dividends and not really investment in the businesses -- analyst are expecting -- analysts are exciting quite a bit of investment here. bars&p 500 -- that is the here, and the analyst spending forecast, it has perked up a little in the last couple of months, but look where analysts projected to be. of course, they have projected it to rise all year, and it has not quite done so. but there's a lot of optimism on the part of the analyst communities that companies will be spending it on capital expenditures, on their own businesses. we will see if that is the case and whether they do so, and of course, cap x can boost earnings, right? one person's capex is another person's revenue, so -- julie: exactly. expansionoks like q1 we are looking at. maybe one of the big stories going into 2018 if this continues, but we're talking earlier in the show, the last hour, no one really believes his is going to stay here and you can see that in the curve. this orange line is what the shape of the forward oil curve looks like last year. you can see it was generally upwards, sloping. more forre paying futures in the outlets than the short months. it's very different review see the short month futures, the west texas crude futures are right there, but going out six months, the prices are a lot lower. people see near-term picks, but they do not believe it is sustainable. interesting change in the tenor of the structure of the curve as we hit up the year. we will see. the market closes coming up. if you look at the market averages, you will see a dip, particularly for the nasdaq, which has been the big winner for the year. we will at the close next. from new york, this is bloomberg. ♪ is this a phone? or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. [cheers and applause] julie: "what'd you miss?" u.s. stocks closing lower on this final day of trading for 2017. i am julie hyman. joe: i am joe weisenthal. scarlet fu and julia chatterley are off today. if you are joining us on twitter, we would like to welcome you. oure: we begin now with market minute. let's start with the stock market. day, we did have the major averages, including the nasdaq which has been the biggest winner of the year, falling. of course, as i mentioned, the nasdaq was the winner on the year and if you look within the s&p 500, the big winners in terms of index points are in a single industry. it's in technology. apple, amazon, facebook. look at those percentage gains on the year. amazon i should mention is in the consumer discretionary index within the s&p 500, despite what we think of amazon as typically. -- itit gives of the gives us the idea that these stocks contributed to the big ones of the year. this takes into account the weighting of the stocks. electric, schlumberger, allergan, -- general electric. showing rocking us in the health sector -- showing rocking us in the health sector. stories is the big the yield curve -- ecb blue line -- youwhite line is the see the blue line and the white line. this is a thing we will be talking a lot about next year. to bear in mind is most of the action is really at the short end. to-yearretty intense selloff. --was pretty relentless two-your selloff. that was one of the key micro stories of the year. alix: definitely so -- julie: definitely so. we saw an attempt of the 10-year to come back. moving on to the u.s. dollar, it follow the trajectory of that yield curve. here's the you're sitting return for currencies against the u.s. dollar. the euro the big winner against the dollar. the dollar had its worst year since 2007. the danish krone, south african rand suffering some political changes there. currency partners with the dollar that fell was the brazilian riel. it is interesting how it was a rally of so many currents versus the dollar. it pains us to talk about this because we talked about it so much, but bitcoin up 13% and at oneng off the highs, point on one session on more way up and came down a bit. we've been talking about other cryptocurrencies like ripple. the story is not going anywhere. joe: it does not seem like it. [laughter] aboutnd when were talking how it's doing against the brazilian riel. here are the winners and losers in the commodity world. here's the losers. oil. not doing much and it took off in the last several weeks. copper up 30%. industrial metals. get that muchot attention. it's kind of sleepy. are talking more about bitcoin these days. up over 11% and politely him, seeing a lot of high-tech and energy applications -- up over um, seeing a lot of high-tech and energy applications. let's look at losers. i feel like natural gas will never be a winner again. down another 20%. so, a lot of the ags -- sugar, down 15%, coffee down 15%, soybeans, down 14%. julie: it's interesting looking at these charts. yes, we feel up our cars. energy contributes to inflation, because the, soybeans, all of that going down on the year tells us why -- at least part of the reason why -- we have not been seeing inflation certainly on the food side. joe: exactly. and those are today's market minutes. julie: "what'd you miss?" not the year of stellar growth that was 2017. that would be difficult to miss. bull runningis into 2018. from quad group. what are signs that you are looking for don't into 2018? peter: thanks for having me here. happy new year. i am really upset. i had my year-end projection for .70 five. 26 it was there two minutes before 4:00 so i have to go home and rethink everything -- i'm sure as long as we talk about 17 i correct.0% i'm afraid you will ask me about 18, and that could be a bit more uncertainty. joe: we have to talk about 2018. -- let's just start with beans. you can never get anyone who has anything interesting to say about soybeans. we just mentioned it in one of the losers. what you make of that? will pat light -- i will pat myself on the back. i was here in july indicating there was nothing like a weather market to sell when there is no demand. i look at demand, where we are, what we are doing, and most missing on the commodities side and the deflationary potential is that technology works both ways. you get more of it at any given price because you are more efficient, but you use less of at any given price because you are using it more efficiently. what you just said about natural gas never going up, you do not need to be a weatherman to figure out it is cold outside. in the short run you might have a little spike. we are insulating more efficiently. -- it is the same thing those pressures are going to continue. i have to be so mindful of the do iand-forth, and where think things are and what is happening versus the reality of and, of course, the markets are right and i'm always wrong, except the points where i am correct, i will highlight it the rest of the time. us whenou don't talk to you're not patting yourself on the back. peter: you can go back to the tape, but that's too much work for most people. joe: not for us. julie: if, as you say, the fundamentals are changing, is this the new normal in terms of inflation, for example? peter: look at the strongest trend of the year. the yield curve. be bond markets are bigger than the equity market. the only thing i can say with certainty is the stocks they were up 50% that you showed, they cannot compound at the same rate of speed they are going up, right? their market caps are significant higher. that means in four years they would be the only stocks in the world. that would not be a great place to be unless you were working for or owning those particular stocks and we can get into politics, economics, between from this morning depending on how we are doing on a slow closing day, but yes. now you add to the fact that you have a regime change at the federal reserve that seems to be more philosophically oriented then data oriented. i think one thing that chairman yellen said -- we will let the data answer that question. inflation has been low. has declined, virtually. wages have not grown that much. therefore we will not embark on tighteningrly strong cycle. i go back to december of 15, 10 years at 220, the fed starts to a hike. we are ending the year, give or take on the other side of 240. that's kind of interesting, isn't it? that's pretty significant flattening of the yield curve. history says if it inverts, that's not particularly good for everyone. that's what i said. i'm trying to disconnect my intellectual from what the markets are doing in reality. julie: we are going to ask you to pause and come back and continue our conversation with peter borish from the quad group. we will talk with peter about the tax overhaul another other areas were politics and markets meet. this is bloomberg. ♪ kalley: i am kalley leinz. first word news this afternoon. new york's commissioners says that an apartment fire was started by a three-year-old boy. he provided more details about the fire earlier. it was the worst loss of life from fire in almost 20 years. the last fire occurred in 1990. we are in the midst right now the lossorst month for of life in our city from fire in the last 10 years. kalley: four of those killed were children. president trump's is there known deal to help -- to protect the children of immigrants unless there is a deal for his border wall. his says that democrats know that there can be no deal for? without the desperately needed while at the southern border. at least 11 people are dead after shootings and egypt. a man on a motorcycle shot at several stores in cairo and then opened fire outside a coptic christian church, killing nine and wounding eight others. the egyptian christian minority is a frequent target of islamic terrorists. made the announcement he will call for the first session of the new catalan parliament to 17th. he made the decision after dissolving the previous parliament after it voted to declare independence. poweredews 25 is a day, by more than 2700 journalists and analysts in more than 120 countries. i am kalley leinz. this is bloomberg. thanks. congress enacted sweeping tax or form in 1987. we remember what happened then. markets fell. a similar thing after the bush tax cuts in 2000 one. should we expect something similar in 2018? that's not that many examples historically, right? is there a lesson to be drawn? peter borish is back with us. student of a history. there are lessons to be drawn. more that werallel have a seesaw economy. the people at the bottom are stuck there and those at the top have done better, continue to do better, the ec sockets further out of whack. many people think you can bring that seesaw back into stability, for -- but for those with young children and you play seesaw and you're on the bottom and you jump off, what happens to the people on the top? if it pretty painful and rapid adjustment. that is what i see at some point next year. technically -- and i always try to say, the indicators are not there yet if you are an investor , you are trading. you should not be the first one trying to jump off the seesaw, but when there are warning signs and they appear, i hope that we catch them and i can share with your audience if i do see them coming. joe: this is a point you have made several times in your appearances on this show, basically the idea that whatever we want to talk about politics or soybean prices or natural -- no onenything really knows when the existing trend is going to end, right? we basically have a lot of lines on whatever you look at, global currency, bond prices, stocks going up, tech companies. is there anything yet that shows these lines are changing direction? to read a lot,y and if you read soros on soros, he has a section there "be mindful of inflection points." it is ok to be with the trends because that's where most of the money is. look for the inflection points. are they very it? not really. we see divergence interest rotation and utilities. they are sort of in sync. is there divergence in terms of the yield curve? yeah. big warning sign. weakness in the dollar? that presidents and others liked they strong dollar. i love seeing in the news every day -- there are warning signs, but they're not saying to take action yet. julie: so, do you not take big action or do you not take any action? do you do some hedging going into 2018 or do you -- absolutely. that is the most important thing any normal investor can do, rebalancing their portfolio. mean reversion world. everybody likes to buy the dip because they think it will go back. the hardest thing to do is take winners of the table because they have run so significantly because it pains people tremendously if they sell something that has gone up a bunch and it continues to go up. now if it goes back down to where they sold it, they never think about it because everybody marks their personal portfolio at the high-tech -- high tick. it is a discipline that not enough people do. julie: thank you so much. we will ask you to sick around a little bit more. , lead strategist for quad group. towill be looking at what expect from the fed. this is bloomberg. ♪ julie: "what'd you miss?" apparently we are missing a lovely sunset. the senate should confirm jerome powell to be be fed in 2018 and he will lead it to continue the fight against inflation. has beenk the fed itching, wanting to raise rates for some time. >> i don't think the reflation trade is there but you of volatility. >> i think over time the reflation trade is still in play. >> we're pretty pleased. >> job creation remain solid. >> the jobs number is a good number. i think we are a very long way from full employment and wage growth is still a long way from where would the if we were anywhere close to it. people have confidence that this administration cannot only get the big themes out there, but deliver on them. >> if he was to keep everybody happy, he's got to do some real policy stuff, not just tweet. there's a few bleary eyes in london today and maybe a few surprise faces. i think what the business community wants to see is the economy at the top of the agenda. waitthink the fed has to until they see the whites of the eyes of inflation. is theh for the yield imperative of every asset class. the insatiable chase for yield continues. we should be watchful for buoyancy getting to a tipping point. yellen hase jannie been doing cartwheels behind the scenes. >> i think the fed will go in december, we think they will go to her three times next year. view jayk we would powell to be more continuous and the policy we have been experiencing. has bailed out a lot of bond investors. yields keep going down and the returns are good. >> the 800 pound gorilla is whether this buildup and corporate leverage is sustainable or does it lead to something less benign? the u.s. economy in and globally is doing well, i think there will be some willingness to look past the fact there is a curve. joe: and we are back with peter borish of the quad group. peter, how do you think about the transition we're about to see at the fed? transitions are difficult everywhere, personal, in business, and i think they will be more difficult at the federal reserve. it's not really a transition from chairperson to powell. it is from an act he who led the -- ben bernanke who led the way to yellen over the crisis to review minimize the pain looking backwards from a positive outcome. so the natural thing is everybody goes, we have done this, it's going to continue. i am going to go the other side because i look at those prior speakers saying, ok, employment -- unemployment is at 4.1%. there has not been any wage growth. over a long trend, that is a bad sign. if the market keeps getting hit with bad news and does not go down, it might be time to buy it . this is a time to sell the fed. that ist looks like overstating maybe? peter: since they started we have had three dots. the thing about forecasting is forecast often. julie: you are data dependent. i am wrong, i as try to make an excuse. at a>> look -- let's look few more topics. wage growth. you say it has been disappointing for years. is there any reason to think it will turn around? toer: no, in fact is likely get worse. i'm an economist. if you want more of something, you need to make it cheaper relative to something else. the tax bill does the opposite. hey, i can do the things that make g for relatively, but i will accelerate the subsidy. i have yet to understand why if you cut taxes that is going to increase corporate spending, but if we raise minimum wage, that will lower and be bad? 100% producers. i think the biggest policy issue we should have is the seesaw is out of whack and we need to work to raise wages and if you need a government program to do that, it's a much longer discussion, i think it would be beneficial. joe: something you might be able to shed light on. the obama years were pretty amazing for people invested in the stock market. they were pretty amazing for the big ceo's and companies who made a fortune. yet there seems to have been a and nowl state of angst you look at ceo's under trump and people are suddenly way more optimistic. that mentalityme on an good that have ramifications on the real economy? peter: i will suggest to you for -- the euphoria comes at the end of the cycle. i will not put it on obama or trump. i think the major working population, there's a lot of anxiety. before we go, just to talk about anxiety, you have sort of a deflationary boom, which is what we had with technological innovation and history says there are issues after that. for those who are all long on bitcoin, remember after the original technology boom in amazon, it went down 95% before it recovered. joe: good lesson for people out there. julie: yes, student of history. , chief strategist for the quad group. thank you and happy new year. watch.up, charts to from new york, this is bloomberg. ♪ . . . retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. kalley: let's get to first word news this afternoon. new york city's fire commissioner says a child playing with a stove sparked a fire that killed 12 people, including four children. firefighters responded to the call in the bronx and about three minutes, but by that time, the fire had spread throughout. they were able to rescue a dozen people. several more were critically injured and are sent to be fighting for their lives. israeli troops fired tear gas at palestinians as they protested along the gaza border. more than 40 people were injured. protests have intensified since president trump recognized jerusalem as israel's capital. the red cross says it has evacuated 29 patients and their families from a military siege in the suburbs of damascus. pro-government forces are keeping the area, home to 400,000 people, under a tight blockade. the yuan provided the government with a list of patients requiring evacuations six months ago but said the government refused to authorize transfers until this week. 12 people reportedly died last month while waiting for treatment. the nfl has changed and cushion protocol after the mishandling of a high profile incident. a houston texans where back was game afterreenter a a big hit but was later removed from the game after showing symptoms. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. julie: thanks very let's get a recap of the market action we saw over the course of the year. final tally for the three major averages. dow jones industrial average and dishing near a record. the year. boeing far and away the best performer there. the s&p 500 helped by technology, up 19%, but actually the laggard among the big three as the nasdaq was the clear winner, up 28%. helped by big tex stocks. as the new year dawns, investors have the task of digesting how macro events could play out in the markets, including the pace of hikes by the federal reserve, french market valuation, and major u.s. tax reform. to give investors a better grip, we pull together some of the biggest charts to watch for next year. mean luke has," i --cifically pull together pulled together these charts. how do you decide which charts are the ones to watch? luke: had a lot of help. it is a matter of what are the defining stories of this year. it's clear that the defining story was location. joe: yeah, you brought a chart showing three key parts of the economy. here you see break down the significance of what we are looking at. luke: this two sessions all year -- august 10 and august 17 -- where all these sectors fell by at least 1%. and we talk about the reasons why implied equity volatility , we dido low this year not have that happen this year. nothing fell together. diversity begin the of the thesis, it is sort of persistent earnings growth in what has been a slow growth environment. thanks, more of a policy play, and we have had this broad macro rebalancing that kind of culminates today with wti finally pushing above $60 per barrel, so we have not had any kind of bearish or a negative event that has kind of recapped all of those events at once and overwhelmed this kind of regime we have had. julie: even as energy stocks were the worst performers of the year, there still was not that downturn in any of these sectors at once. in some ofespecially the big tech dumps earlier in the year. a lot of those days, it was energy kind of saving the day, even as it was still down on the -- kindt it was kind of of these three players held it up. that is why we were able to kind of cruise through this year. julie: one of the other things as we have gone through the year is gold actually finished higher, which it did not feel like it did. joe: think about this year, did think three fed hikes, you think about it coin may be grabbing some of that uncorrelated asset, kind of escape from the normal monetary system. this is like kryptonite for gold, and yet, gold posts new a 13% return is was strategist penciled in. even more interesting, five-year real rates tend to move very inversely to gold, and this is the first year they have actually moved in the same direction since 2008. right now, those lines are the ones you see in murder, flipped. five-year real rate. as the fed has hiked, you have seen that advance, but moving downward, and you have seen gold, especially from rebounding after retracing september lows really picking up. now, it is in a battle between fundamentals and technicals. the technicals say that it is really due for a breakout. this is a great call from thence, but again, we have a dead that is intent on signaling intent on -- a fed signaling more hikes. joe: what is the theme here? luke: the theme here -- where was it this year? it completely vanished. even as we had the announcement of fed alex sheet normalization going down -- what will be key for next year is do we finally see some kind of pick up business? there's a lot of reasons to expect from maybe japan tweaking yield curve control, the ecb starting to end or completely ending its quantitative easing program, but also the mechanics of the fed offloading interest rate risk onto the market, especially through agency mortgage-backed. joe: people talk about the fed qe program is absorbed or suppressed volatility. what are the mechanics through which that happens and how does the flip of that release that volatility back onto the market? of bond funds will want to target a set amount of duration. the fed never really cared about this, but as they are releasing under theore mbs market, they are becoming a big player. when mortgage rates are falling, if you want to maintain that exposure, you will have to go with the trend and go with falling rates in the event that they are going higher, prepayments will not happen in a rising rate environment for mortgages, so you are hedging at the other way, but selling swaps and betting that they move higher. in that case, you can see how .ou would have these moves joe: the moves require investment managers to buy into the moves rather than to allocate the other way. luke: yes, and that is something that had never did. in terms of price-sensitive buyers and more of what is coming onto the market, that is we mightclear impetus get more interest-rate rate volatility in the year ahead. julie: when you were talking to people and putting this ahead, what was the chart that worried people most? luke: the biggest risk when you look at all of these is how do we get a year in which all of these things happen? in which we had synchronized global growth, a lot of headline risk in terms of north korea, geopolitics, a lot of tweets about public policy, a lot of public policy falling through before the end of the year, and how do we have another year in like this could be repeated? i think that is the pain trade. julie: i think mean reversion is going to have to happen at some point. luke: eventually he or julie: the question is timing, of course. thank you so much for joining us . still ahead, it will be legal, but maybe still out of reach in particular places. l.a. and san francisco in particular. residents there may have to wait even longer to get their hands on legal recreational we. from new york, this is bloomberg. ♪ joe: it's getting lighter later, so that's exciting. california will legalize recreational marijuana on andary 1, but los angeles san francisco are among the many cities not quite ready for the big day. we go to los angeles for the details. california switching over from medical marijuana being legal to recreational, so that is kind of a big deal, but in l.a., they have all those fake doctors offices anyway with the big green sign that say they can give you a prescription in, like, 30 minutes, so is this functionally going to make a big difference? >> it is. even those medicinal dispensaries you are talking about have to get licensed again . everyone in order to sell cannabis has to get a license from the state. cities across the state have done this. a lot of cities, including los angeles and san francisco, will not, so it will become more difficult, even if you have one of those recommendations, it can be tough. if you want to go on monday, day one of legal weed in california, you could have problem. julie: why are l.a. and san francisco behind on this? not only are they depriving customers who want to buy, they are depriving themselves of tax revenue, right? jennifer: the delay likely will not be very long. san francisco will have sales starting january 5. l able take a little longer. the reason is because in order to obtain a state license, you have to have already gotten a license from your municipality, and the state did not release its regulations until really late in the year. just a few weeks back even. for a lot of cities -- some cities went ahead and released their own regulations, caught the ball rolling on local licenses, but a lot were waiting to sort of have the states lead what they were going to do with regulations so minas could follow thereafter -- municipalities could follow thereafter. joe: there are still aspects of the business highly regulated. what about on the growing side? dispensaries are allowed to sell on a recreational business. who is allowed to grow and ship? jennifer: growers, manufacturers, distributors -- those are also licenses that businesses have to obtain both locally and from the state. i've been focusing a lot on stores because that is what consumers will be touching directly, but those businesses are in the same boat. they have to get licenses, and in a lot of ways, it will be difficult for people who have been operating in california and a sort of gray market for more than 20 years because the regulatory burdens are significantly higher. they have to implement more technology to track and make sure that the cannabis is being put into the legal system instead of on the black market. there will be some real growing pains in the industry as people are going tow they switch and really have everything on the books. joe: something pretty extraordinary is the increasing the percentage of people who say marijuana should be legalized. over 60% right now. do people in the industry just think it is only a matter of time before every state has this legalized everywhere, basically? jennifer: a lot of cannabis --repreneurs are actually their minds it is we're going to get here early, build our businesses while major industries like alcohol, tobacco, pharma are watching from the sidelines because they do not want to be involved in a deemed federally illegal. for entrepreneurs, we are going to take the next 5, 10 years, build our business, and when those other big industries get into this, they will be able to snatch up whichever of us has grabbed the biggest share of the pie. california is the most populous state, so obviously, that is a big market. you talked to a lot of these people. you have been reporting on the industry for a wild. what do people like -- what are people like in the weed business? are they entrepreneurs, pot aficionados? i'm curious what kind of folks are making up this industry right now. annifer: and the time of covering this, there has been a shift, and it's notable in the industry where there is sort of the old guard, things you think of as being stereotypical stoners. there are those people, but more and more, these are entrepreneurs coming from wall street, from major cpg companies who see an enormous opportunity. the creation of a brand-new industry, and a lot of people who had been in the corporate world and other sectors think, when am i going to get an opportunity like this again? joe: thank you very much. fascinating story, and i think we will be talking a lot more about it in the new year. julie: coming up, the president says his efforts to cut regulatory rules is the most far-reaching reform and regulatory history. next on the agenda is dodd-frank for 2018. we discussed the impact of all those regulatory rollbacks. from new york, this is bloomberg. ♪ joe: "what'd you miss?" on december 14, the president boasted his effort to cut government rules is the most far-reaching regulatory reform in history as he literally cut through red tape. he said in the first 11 months of his administration, the eliminated or delayed 15 regulatory actions. our guest discussed the regulatory rollbacks happening under the trump administration. hisi: donald trump, to credit, did in fact eliminate a lot of regulations. as bloomberg has reported, many were actually initiated by the obama administration and are inconsequential. it is clear he has targeted the abc level, to the extent he can do that by executive action, he has been quite effective. julie: how do you reconcile that with m&a deals? marty: it really boils down to what happens at the agencies. the way they actually conduct business is supposed to be away from political influence, and so far, there has not been any real significant pushback on some of these deals, and we have to wait and see just exactly what kind of policy they adopt. >> the senate bill to raise the financial institution threshold -- is that likely to be a high priority now for mitch mcconnell? mcconnell has stated quite publicly he will not try to do anything in the senate this coming year without the help of democrats. not going to be interested in deregulating the banks. they had taken a very hard stand if he cannot, and get any democrats to go along, that is just not going to happen. >> luigi, let me bring you in here. we have labored intelligence writing a lot about this senate bill, saying while there may be a few hiccups along the way, it should pass by the second quarter. if that does happen, i wonder what sort of effect that might have on big banks versus smaller banks in the u.s. could it cause any instability at all? luigi: no, i do not think it would cause instability. i think it is important to remind viewers and listeners that this is not the financial choice act approved by the house in june. planis a much more modest to change and particularly relieve the burden for smaller banks. say we startt it to increase the threshold to the point that there is no threshold , they goes away, but i think this particular change will not be particularly destabilizing. some of these will be good for small banks who are, i think excessively burdened by dodd-frank. move.k it might be a good >> to you see anything coming out of congress in terms of u.s. banks where we could see more ? sks being taken luigi: i think i can certainly see it. there's an infinite possibility. there is no question, as martin was saying, that the trump administration is trying to erode some of the regulation that was put in place. i think some key aspect of dodd-frank is it achieves such a large consensus i do not expect them to be rolled back. think about the intervention authority, the lending authority, for example. i do not expect that to be rolled back, and i think that is a key element of dodd-frank. attentionere is more for the consumer financial protection bureau because republicans are really going after it in a very aggressive way. again, i would be surprised if republicans were so bold to eliminate it completely because i think it does serve an important purpose. university of chicago booth school of business zingales.luigi julie: the irs is issuing its first major guidance under the new tax law, dealing with a one-time tax on companies repatriating offshore earnings and profits. the irs says companies will go a 15.5% tax on cash and 8% on liquid assets. companies had asked for the guidance because the assets have to come home by january 1. goldman sachs says u.s. tax reform will cut earnings this year by about $5 billion. in a filing today, the company attributed roughly 2/3 of the hit to the repatriation tax and cited the territorial tax system and the measuring different assets. several major banks will be taking large write-downs for the same reasons. valid pharmaceuticals and pershing square holdings have agreed to a settlement over insider trading accusations. -- botox of all top maker allergan claim the companies engaged in insider trading during that unsuccessful takeover bid of allergan. denyackman continues to the allegations but says it was in the best interest of investors to settle the case. really interesting resolution of that insider trading case. especially on the last trading day of the year. a little quiet announcement. joe: coming up, what you need to know to gear up for next week and next year. ♪ julie: "what'd you miss?" a little bit of a decline in stocks to end 2017 even though it was an up year. wednesday,this -- on the much vaunted or much criticized in some quarters .ethod takes effect joe: the jobs report comes out on friday. great thing to get excited about. julie: yes, indeed. big indicator. bloomberg technology is coming up next. joe: have a great weekend. kalley: let's start with a check of your first word news. president trump says there will be no deals for the emigrants brought to the u.s. illegally us children unless it includes funding for his border wall -- immigrants brought to the u.s. illegally as children and lesson includes funding for his border wall. "we must protect our country at all costs." 1ca protections expire march unless congress intervenes. the new york fire commissioner says a child playing with a stove sparked a fire that killed four children. firefighters responded to the call at the building in the bronx and about three minutes, but by that time, the fire had spread throughout. they were able to rescue a dozen people. several more were critically injured and are said to be fighting for their lives. police promising a bigger security detail than ever before in times square for the upcoming new year's eve celebration. 2017 saw a number of deadly attacks including a vehicle assault at the same spot where revelers will bring in 2018. global