Transcripts For BLOOMBERG Bloomberg Daybreak Americas 201712

, one of the three softer currencies against the dollar. i wanted to follow the tech selloff. nasdaq futures are down again .7%. we have seen that industry continue. let's get an update and wants making headlines. emma chandra is here. am it there is a turn in the tax bill debate and republican leaders are scrambling to save the bill. mitch mcconnell sent lawmakers home last night. they are looking to offset the cost of the measure. while republicans are asking the tax cut not drive up the nation's debt. the price of oil is rising after opec will keep production curbs in place. libya and nigeria have joined the agreement. opec and allies like russia are trying to reduce global stockpiles. oil prices are up 20% since september. parties on both sides of the irish border issued -- are refusing to compromise. they are trying to deal with the hard border. the eu will not let trade talks continue until there is an agreement. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. alix: thank you so much. back to what is happening in d.c.. republicans are scrambling to reform their tax bill. $1.3 trillion problem. joanathan: it's friday. alix: it's been a long week. senators johnson, corker, and flake objected to the measure increasing the budget deficit. joining us is kevin cirilli. are we going to have a vote? kevin: it's unclear. they will reopen the debate after a dramatic showing on the senate floor. mitch mcconnell spoke with the senate parliamentarian, who ruled that the proposal put forth by bob corker, who had reached an agreement over a trigger point it would raise taxes should the reform package not fund itself, there is a clear division among republicans over the trigger point. even if this does advance out of the senate, it is headed for a showdown with the house republicans. several prominent republicans in the house feel this is not the way to best day for deficits. they feel economic growth is the result and it would pay for these deficits. tax is just another increase being proposed by senator corker. alix: some senators are not on bill -- on board with the bill. kevin: we had some people who on the issue of revealing the individual mandate as well as the pass-through rate, the rate being targeted by ron johnson from wisconsin, that had been coalescing behind republican leadership. there had been a deal made. all of that is off the table and scratched because this is going to ultimately come down to the dealmaking this morning when republicans will huddle together and in which case they will get this out of the senate here it as you play this forward, -- senate. ityou play this forward, could come back to the forefront during the reconciliation in conference process. who is chosen to be part of the committee that ultimately reconciles the senate version, it will get out of the senate, once that happens, how they will reconcile them remains to be seen here in -- seen. the pass-through rate and the issue of the trigger point will definitely the involved. >> if senate republicans do not get to a vote today, what happens? kevin: it would go into early next week. i would suggest strongly that mitch mcconnell feels he will advance this out of the senate if not today then next week. then it does get to that process of getting this on board with the house. that is where there will be a lot of you making. the preview for investors watching is the dynamic between ted cruz as well as bob corker. senator cruz is against the trigger point. his alliance and the house is as well. joanathan: thank you very much. we should not be surprised by this. wieldficit hawks know to real leverage, you wait right before the vote. we might see bad policy with these triggers. we have had conversations about how ridiculous it is so many of -- fiscalp physical policy. alix: growth is not achieved. -- meanwhile the reports coming out of the treasury department that steve mnuchin has been saying they are working on a report, and it's questionable if we will see it, that says it will be deficit neutral. there is a lot of noise at the last. we closed out november for an eighth straight month of gains. it's the best since 2007. around the table with us in new york is mike schumacher. we shouldn't be surprised i this. jim: we should not be surprised. the disappointment is it's all about the tactics. there is a big strategic picture marginalginal -- lower tax breaks improve the economy. in the last two weeks, the equity market likes it did lower marginal tax rates also need a broadening of the base. that's up light way of saying take away someone's tax breaks. that becomes intense in the washington environment. if you get the tax reduction without the broadening of the hawks are notcit going to like it. the deficit hawks in the house will be more assertive i suspect that in the senate. joanathan: what is your best case? back to getting some of the broadening of the tax base to work. to do that and lower the tax rate, you will get better growth and you will get a sustained. -- sustained time. because 10ple say year treasury yields of not gone up and bond traders are not worried about increasing deficit, this indicates the tax cuts will not juice growth. jim: it's interesting talking to our traders. they say we still have a bull market. why is that? the answer is the treasury is talking about the issuance program. ishink the mechanism here the bill gets through in the deficit goes up and issuance goes up. there are probably a lot more five-year treasuries. shortened rates will move a lot. long end rates people are confused. >> you say the short end has been due to the expectations the treasury department is going to front lewd issuance massively -- frontload issuance massively. mike: it's been a different dynamic and we have had. part of it is more front and stuff, three or treasuries get hit. mark --e dollar western dollar? dad ii would's us thed think -- i would think fund rate would be somewhat firm next year. it's very hard to be clear. they are quite confused. affirm dollar would be my best expectation here it -- expectation. i think something will go through with the deficit that makes people uncomfortable. alternatively, the tax rate is not going down as much as 20% on the corporate rate. you are going to see a messy compromise. will it preserve some of the market benefits, the economic benefits of the lower marginal tax rate? joanathan: i want to challenge the idea that the bond market is confused. i think it's pretty convinced everyone i speak to seize a flatter yield curve next year. this speaks to that. they are convinced he notes are going to go up and they are convinced the long end will be anchored. >> is there a difference between being confused and the reason how to interpret them? does that mean there is going to be a recession? is there going to be a change in the issuance? mike: if you look at the relationship over the last nine years since the financial crisis , youen yields and growth may as well throw spaghetti at the wall. they don't connect. as far as a recession indicator, not very helpful. joanathan: he will be staying with us as well. coming up, the brexit breakthrough is in jeopardy as the debate on irish border continues to heat up. can an agreement be made by monday? sterling strength is dominating much of this week. that is next. this is bloomberg. ♪ joanathan: the view from our new european headquarters in london. it's a beautiful day in london, i'm not so good for one for brexit talks. sterling is a little bit softer. the breakthrough may be in jeopardy as they did again on the irish border. the border is a big stumbling block. negotiations are not where they need to be to make progress rid what does it mean for theresa may? it's great to catch up with you. what does this mean for the government domestically? what is mean for brexit? we have heard that london is pushing back against the deadline of monday. we were led to believe that monday was going to be a breakthrough. now london is saying the deadline is the middle of december and not monday. joanathan: what does that mean for the prime minister? andlooks to her government it looks shakier than a couple of weeks ago. northern ireland party that props up the government is taking a hard line on the border. it goes to what they are about. last nightlawmaker was conciliatory. this morning, we have had the irish warned mr. say a deal is possible in the next few days. the possibility of an 11th hour deal, just before mid-december. if the irish were happy with the situation on the border, you could imagine to eu would accept it did the eu has been intractable with time limits so far. joanathan: what are on the ticket -- what ideas are on the table? ; in order for them to not have a border war, northern ireland would have to sign up to the same rules as the republic. for the northern island part propping up the government, that is a red line. the whole point is to keep northern ireland as part of the u.k. do you bisected? she depends on their votes to govern means the views of the dup are important. joanathan: thank you. i want to bring in mike schumacher as well. you spent a lot of time in london. how are they going to address that? how are they going to solve the bill, the rights of citizens, the irish border? mike: the rights of citizens shouldn't be that hard. the irish border is impossible. you either have a order in orland to satisfy the dup you have no border in ireland, in which case the u.k. is out of the customs union. you have a border on the irish sea. you have something for customs and immigration's. i don't think either of those is acceptable. joanathan: either the government breaks down in her agreement, brexit talks break down? mike: that is really hard. joanathan: that's what some the table. mike: i hope none of that happens. it feels bad for prime minister may right now. that is the biggest fear in the government isher gone. you get a general election and that means a jeremy corbyn government, which would not be market friendly. alix: you can see that reflected it. what is the difference between a flat spread in the u.s. and what we see in the u.k.? mike: i would go back to last year. what happened last year, people could not get enough of those things. it's not a huge flight to quality. theer-term, you might see economic platform, short-term investors need safety and they will buy whatever they can get. saved thesterling u.k. after the brexit vote. there is a downside risk in sterling. >> are you seen any opportunities open up over the negotiations? do you buy a certain asset? jim: not really. there isn't actually a clear good out turn to hang your hat on. i've been saying for a while, u.s. equities, european equities sell on strength. that is still my point of view. >> why this strong up stuffed animal? what is that? jim: i think that is because the border was a place where there was a lot of tension. it's kind of a memory of the tensions. >> it's not a brexit symbol? jim: i don't think so. the irish have a very long-term perspective on these things. alix: you are both sticking with us. coming up, the trump trade and the yellen rally. who should take the credit? this is bloomberg. ♪ alix: the dow is breaking 24,000, guess who is taking credit? president donald trump. he tweeted yesterday. if the dems and one, the market would be down 50%. that's a call. consumer confidence is at an all-time high. is it true? joining us is matt winkler. these are the numbers. is the tweet accurate? matt: no. let's start with some basic facts, which one needs to frame the discussion. anald trump inherited expansion that is in its eighth year. has the lowest interest rates we have seen in generations. that's a wonderful combination for a boom, that's why the stock market had a wonderful year. it had a wonderful year in 2013. here we are in 2017. he inherited something that was going for a long time and will continue to run. the second thing is, these are ideal conditions for stocks. the reason for that is you have very low volatility. that is something he had nothing to do with. there is low volatility in the treasury market and the stock market. i like certainty and i hate uncertainty. this market has been very certain in the sense that there is low volatility. rates,e the low interest which says to companies, you are stupid if you don't invest. alix: i love the volatility point. up,ou go ahead and bring it there is implied volatility for yellen versus 100 for the others. did she do that? matt: i would say yes and a very simple way. she took it upon herself to make sure she was communicating to investors and chief executives in a way that was unprecedented. you can see that in the forward guidance that she had a lot to do with it coming out of the financial crisis. she worked for bernanke. she devoted herself to communicating to the markets, to the public in a way that the fed had never communicated before. that clarity of message was consistent. it turned out to be accurate or it everything she said increasingly became true. >> removing ourselves from whether the trumps are accurate or he can claim credit, how do you respond to people who say the tax cuts have had a material effect on certain stocks, people pricing in saving money. that has been responsible for some of the gains? matt: larry summers on this program, a very distinguished said if you look at the market right now, the stocks rallying are not the ones that would be most affected by tax cuts. the stocks that are doing well have been the ones that would be affected at all. it's difficult to make the argument, which is the one he is making. we haven't got a tax cut yet. we are still waiting for your it the market hasn't responded that way. it has responded to optimism in the future. stocks rallying the most are the ones investors get excited about, technology stocks. alix: we know that. thank you very much. coming up, a flattening yield curve? loretta mester's says that is not what investors should be worried about. you should look at the stock market instead. more on that in a minute. this is bloomberg. ♪ joanathan: a little bit of weakness creeping in, just a little bit. futures are up .4%. the dow is up by one third. the only down month so far, march, it was -.04%. let's switch out the board. the bond market is the story. yields are lower by three basis points. there is a little bit of risk aversion. we are seeing some yen strength come into the market. to 135.e rate is up let's give you some headlines. this is first word news. emma: there has been a setback and plans for the tax bill. mitch mcconnell sent lawmakers home last night after the collapse of a compromise. they will have to find ways to make up several hundred billion dollars. a final vote is still expected today. there is a report that president trump may take a step. according to the associated press, the present is considering recognizing jerusalem as the capital of israel. that could anger palestinians, who claim part of israel. it would be a way to offset a campaign promise. the senate ethics committee has opened an inquiry into misconduct by senator al franken. he asked for the investigation himself after he was accused of groping. he is given no sign he plans to resign it. sign he plans to resign. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. lisa: beretta mester says she agrees with jerome powell that the case for a december hike is coming together. she spoke with mike mckee. he is with us now. what was her justification? it is important that she does. she is a voter in 2018. she says the economy is getting stronger. we are seeing more growth and unemployment is continuing to decline. we will see faster inflation. longer, butay take she said she does expect us to see it pick up toward 2% by the end of next year. it's important that the fed get ahead of that and not be behind the curve. lisa: what did she say in response to the flattening yield curve? why was she so confident this is not signaling something the farias or detrimental? mike: the yield curve moves up and down. there are reasons to think it would flatten at this point. the fed is pushing up the short end and raising rates. the term premium has fallen on the long end. as the fed continues to tighten, that will come back into play. we will see a steeper yield curve going forward. lisa: did she say anything about the leadership next year? about jaydid talk powell been a very smart man and some with great leadership skills. she thought the fed would not miss a beat going forward. marvin good friend would be a great addition. is said his analysis terrific. she looks forward to working with everybody. the fed has a long tradition of transitions. it will be fine. lisa: thank you so much. we love to hear your insights. be a most says the yield curve could avert after march. inflation is the biggest concern for treasury markets. still with us is mike schumacher. jim, we have talked about how it is hard to interpret the yield curve here and when do you get nervous? i do think the fed will continue to be disappointed that inflation doesn't go up. the reason i say that is the fed has consistently for several years underestimated the deflation in the economy. that is why in past recoveries you have seen inflation picking up i now. the idea that it will suddenly pick up next year doesn't seem right to me. i think what we are looking at is a continued deflation rate to the economy, which will keep short rates isolated from long rates. it will keep the long rates down. that is the right answer. short rates should go up, even if the economy has very little inflation. joanathan: that makes me think we will have another year of goldilocks. it's a continuation of what we have had. what will it take to break out of this goldilocks theme? volatilityked about surging. bad call. it's a friday. it's a shift in central bank policy. balance sheet reductions of just started. we have had pretty minimal reductions so far. that ratchets dramatically next year. the ecb is stepping up purchases. central tanks are migrating and becoming more hawkish here it -- hawkish. joanathan:'s next year when we need to break away from a regime that is dominated markets for several years? jim: i am still on low volatility equities. there will be a point when this changes. it will be something to do with capacity strengths -- constraints in the economy leading to a shortage of labor. that's when you will get something going on in terms of inflation. i think it's a year or two away. next year feels like of this year. the private sector is prospering in spite of washington. isa: everyone talks about it goldilocks. what about the consumer? mortgages are another story, let's talk about auto loans and student debt which is increased by 122%. a lot of the financing the coast toward these markets is off the short-term rates. it's going to get more expensive for the lenders. rates are going to go up for the consumer. mike: i agree. the fed is tightening and it will go up in lockstep worried it is a massive concern, not right now. strife,it's a lot of but not huge. jim: the margins on the consumer lending we are talking about are quite high. a point on short rates is easily absorbed. what does that mean for banks? jim: a flat yield curve plus squeezed margins are not a great story for banks. i would not be a great advocate for hanks stocks on that basis and -- basis. alix: what about the regulation? jim: it depends on how they get overleveraged this time around. if that is on more consumer lending, that is not good for banks in the short-term. alix: you brought up earlier this morning that there is more risk taking on. lisa: we are hearing about some market making getting bigger. is not necessarily good news for those stockholders. alix: thanks a lot. you are sticking with us. oil is extending gains after opec is extending cuts for 2018. the no drama meeting may be masking problems down the road. more on that next. ♪ emma: this is a hewlett-packard enterprise greenroom. this is bloomberg. now to your business flash. it would be the biggest acquisition ever in the tech sector. qualcomm would be increasing its offer for now. according to people familiar with the matter, they are waiting until the board meeting in march. they will. an activist investor is targeting the longest -- largest dairy processor in the u.s.. they own 8% of the firm. the stock is undervalued and they need to talk to other shareholders about strategy. is shaking up his hedge fund. they are closing the discretionary fund and letting investors shift to the main cbi fund. have fallenassets roughly in half. that is your bloomberg business flash. alix: in the commodity market, brent prices are getting a boost as opec wrapped up last night. the oil-producing nations did agree to extend production nuts -- cuts through 2015. they did not discuss the mechanism for looking at the cuts did this is with the oil minister had to say about the expectations. 2018 is what we would have done in 2017. we see it -- and increasing level in compliance. october are very encouraging. reflectt november to this as well. is a joining us now bloomberg view reporter. what is the biggest question we still don't have an answer to? point, the question that needs to be answered is how the deal is going to be unwound here it we hear from people here on the ground. the complexity in making this happen was substantial. the market had baked that in as the consensus. with libya notnt being asked the pump beyond their 2017 highs. they both say it's too early about an exit strategy. then see how18 and they can bring this back to normal. alix: i want to point out what goldman sachs did. take a look at the bloomberg. this is implied volatility for rent. 22.as around they say it is going to decrease because this leaves opec response of along with russia in terms of that balance. you are not going to get the big volatility. is that what you are hearing on the ground? yosef: definitely. back ofming out off the this meeting. goldman sachs is one. they said you could be looking at weaker oil prices in the next month or two off the back of what we are looking at in terms of seasonally weaker demand. a conservativeis strategy. another surprise at about a longer extension and allocating those quotas to make sure they are getting closer to the five-year inventory target average they want to get to. alix: what is the rhetoric around shale? what is the best guess? what is the best guess on u.s. shale production? yosef: again, the comments of been quite very and colorful. you know how bullish some of these investment houses are about the u.s. shale story. it is inching ever closer to $10 million -- barrels per day. -- 10 million barrels today. he said don't expect much from shale in 2018. if things do change in terms of supply and demand in 2018, they will revisit their strategy in the summer. it's also important to point out that we saw a very united front between russia and saudi arabia. they were cracking jokes during the press conference. is the rhetoric around the saudi's on the russians right now. thank you so much for all of your hard work over the last few days. still with us is jim. there was a fascinating study out of m.i.t. overnight the talked about the gains in shale due to the fact that producers have been working in better areas. what did you think about that report? fade, but it would be a mistake to underestimate that there is impact from technology. they go after the easier deposits first. that's what you would expect. i think the technology has made very dramatic reductions in production costs. that is the key issue. five years ago, shale cost $90 to produce, now it is $40. that is the key to the supply. lisa: from an investing standpoint, if the shale question mark were taken off the table, where should crude be trading? jim: it would go up, clearly. that's very hard to say. it might go up 30%. i don't think it's going to happen. i think u.s. crude reduction will be healthy and oil will trend downward rather than up. alix: what winds up happening to the curve? this is the brent curve. $2.38.ead is that is operation and prices are more expensive now that in the future. how do you invest around that? jim: that makes sense. you would be long oil consumers and short oil producers. i don't think being an oil producer is a great thing for the next five years. a negativelly take side on oil and one that makes it a dangerous place to push your investment too hard. this is an unfashionable view with the rise in oil this year. i think that has been tempered while the opec restrictions failed. alix: they want to rotate out of momentum into energy. i have seen that call from other strategist. clearou have to have indexes to move out. they tend to have more momentum than people think. i think they are selling to early on the momentum. joanathan: this is classic late cycle sector. jim: it's not there yet. that is my point about capacity. sure, you are headed for a recession and oil goes up. jonathan: we spent the last hour talking in terms about how low yields are. i look at some of the oil majors in think maybe there is some attraction there. jim: you have to be wary of the longer term. lisa: you underweight energy? jim: we are a multi-boutique, different processes lead to different ends. i would not be overweight and would be underweight energy. lisa: jim is sticking with us. to your point, the mps are going to be issuing. jonathan: i do put that to one side and think about a run selling down in going public. i think it was going to happen in norway. in the short-term term, things are looking better. they are much more efficient. longer-term, you think about where that commodity is going. it is not so great. alix: they are getting their money in other ways. lisa: the bond market is causing those low yields. the cryptocurrency hit $11,000. more on that going's wild ride. you can watch tv go and interact with us directly. that is on your terminal. this is bloomberg. ♪ jonathan: there is no consistent story for bitcoin this week. it surged past the $11,000 mark. it is now flirting with the 10k letter -- level. alix talked to lloyd blankfein. lloyd: i would say life must be really rosie if this is what we are talking about. it's not for me, but there are things that weren't for me that worked out well. if it was 20 years forward and it worked out, i could tell you why. based on what i know, i am not testing it will work out. jonathan: if you take everyone on the street, they are the most open-minded about what it could be, but they don't know what to do with it now. alix: he called it a commodity. you grew up in the commodity world. ifl me where the risk is rid you trade that, where is it going to come from. he was unwilling to do that. they don't have a strategy yet. lisa: the way you asked him about what would happen if a client came to him to ask him, he would say i could call someone. he doesn't want to lose clients and clients are interested. jim: there is no intrinsic value. it is of no use unless it became a proper currency, which it isn't. it could go to zero or 100 times its current value. it could be in bubble territory already. does it actually become a currency? does it becomes a means of exchange? that it has economic value. they are getting rolled up into funds, that takes it away. jonathan: i want to go to and robinson in london. robinson -- and -- ed robinson in london. what are they thinking about it? what does it mean for the future? : he made some very thoughtful comments about it. you have seen a lot of leaders in the capital markets coming out with some strong skeptical statements about bitcoin. carson's comments were intriguing and he was very open to the idea potentially, the central bank doing something with digital currency. i thought that was newsworthy. jonathan: i am interested in how the regulators feel about it. when do the regulator stop saying it is on our radar? when do they act and how do they act? ed: there will be an event. there will be some kind of crisis, and it could very well that isfshore exchange not currently regulated under u.s. law or eu law or even in asia goes down. hundreds of millions of dollars in wealth suddenly evaporate and there is nowhere for investors to turn to for some appeal or compensation. that creates an event that would focus regulators very well. you.han: thank it's good to see you. is coming bob michael up very shortly. we are counting down for the cash open in new york city. it is one hour and 34 minutes away. we are kicking off december. it is a countdown to christmas already. switch out the board, yields have been creeping lower throughout the morning. they are down by three. for our audience worldwide, this is bloomberg. ♪ is this a phone? or a little internet machine? [ phone rings ] 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. choose by the gig or unlimited. and ask how to get a $200 prepaid card when you buy any new samsung device with xfinity mobile. a new kind of network designed to save you money. click, call or visit today. ♪ jonathan: the senate delays building on this tax bill until later today. investors are made optimistic. the dow is the longest monthly winning streak since 2007. and theresa may's brexit breakthrough in jeopardy. from new york city from our audience -- for our audience worldwide, good morning, good morning. i am jonathan ferro. a little risk aversion in the markets ahead of the opening bell. yields are lower on 10 year treasury. the euro dollar weaker at 1.1891. and future softer, down by eight points. all of that has not been interesting this week. it has been about bitcoin. alix: bitcoin features will threeand they say that exchange operators will offer bitcoin products and the exchange has pledged to help monitor the bitcoin spot in the market. the cantor exchange will offer bitcoin binary options. regulators are about a bitcoin futures to trade on the cme and cboe. joining us is rob. walk us through the details. bitcoin a big step in moving into the mainstream of finance. futures can be purchased by lots of institutional investors who would not by bitcoin itself. brokers or banks who have clients who want to buy it can now heads. and on the other side, you can go short for the first time with relative ease. lisa: when you talk to people in the market, is this good or bad for the price of the coin, considering shortselling, new regulations and over scrutiny that will come? rob: it will be good or bad. that is right. . the answer is yes. as i said, it opens the door for institutional money, so there will be more cache coming in -- cash coming in but people can go short. alix: what happened to allow the regulators to take this step? was what happened 13,000,000% gain. lisa: there enough. rob: mainstream finances started looking at it and what push the store open was the cme and terry oney announced recently month ago that they were going to offer futures. said, we havely questions. they had consultations and the cme is a self-regulatory organization, so is the cboe, but regulators now have to be involved. life in the way, it was not their choice. jonathan: i am itching to get the view from jpmorgan and see if we can get michael in trouble. about the discussions you are having around the currency at the moment. >> there are a lot of things we like about it. we like the block chain proof concept, the digital currency. quarles, whodal actually is the fed oversight of wall street, made some pretty good statements yesterday when he said the problem with it, and he went to through fundamental issues, there is no intrinsic value, it is not of an institution. next day, you get the regulator stepping in. i think it is a great step forward for digital currencies. future.nk there is a the things that you like to see are the regulators involved. when we have talked to investors who have put money into bitcoin, a lot of them have had an unpleasant experience, where they tried to get the money out and it is not there. i think this helps with the counterparty risk. there are other things that will happen. i would love to see the central banks down the road, 10 months or 10 years, administer digital currencies. jonathan: what are the safety measures taken around this as it will be traded on the cme? what is the risk if there is a problem or mistake and it leads into other issues elsewhere? if there is a problem at the bitcoin exchange at the moment, it will not cause a problem for .rading, treasuries, crude could this now that you put the official standpoint and start trading on the cme, could there be problems? rob: one thing is that there is a very high margin requirement. that is one thing that happened with the cftc over the past weeks. they raised them further. i think their initial range was 25 to 30 and now they are higher than that. contain some of the issues. also, keep in mind, this is cash settled in dollars, not physically settled. that is maybe a next step but that is a huge step. it comes back to what you were saying about monitoring the spot market. i monitor the spot market every day. what does that -- what is that really about? bitcoin exchanges are not federally regulated. bitcoin was designed to not be regulated. alix: and now we are moving in different territory. this dovetails what i talked to lloyd blankfein about. i said, what do you have to see when you have to wind up getting involved in bitcoin? here's what he had to say. you have to be thinking about investment banking strategy with bitcoin. i cannot believe you are not. >> no, i do not. we will see. if it works out and gets more establishment and trades like a store value and does not move up and down 20% and has equity in it, we will get to it. alix: rob, does this news change the conversation? i'm trying to get a handle on what that turning point is for a big bank. rob: i assume if you are the head of a big bank and your clients want it, you will figure out a way to accommodate them. alix: let's talk to clients, called, it -- bob, i would point to get involved? of theen you get more regulators involved, i think you have got to get the central bank involved. you may have to get the vis involved. lisa: aside from regulation, what level of control to have to see before you say we are opening a bitcoin fund? bob: randal quarles said it has to be the liability of a regulated institution. currently int is dollars. that has to be some sort of banking obligation. that is how i would say it rolling up -- see it rolling up to banks and doing away with paper money and going to digitization. alix: you are a rates guy, fx guy, all of them, do you feel that having it beyond futures cannibalize is some part of that, like a gold or currency, do you think it is a new category? rob: one of the biggest criticisms, there are many of bitcoin, one of the bigger ones is it is used to hide capital and cash. and gold can serve that same purpose. does it cannibalize a little bit there? does it become an alternate currency? i think definitely. down the road will it replace paper money? absolutely. lisa: you cannot make bitcoin necklaces. jonathan: you can. alix: mcdonald's? mcdonald necklaces, what does that look like? jonathan: an awkward moment and alix steel made it more awkward. rob urban, thank you for joining us. futures are allowed to trade on the cme and cboe. coming up, the dow blue 24 k for the first time -- blew 24 k for the first time. more on that, next. this is bloomberg. ♪ ♪ senate republicans are scrambling to salvage their tax reform bill and they have a trillion dollar deficit problem. suspended until 11:00 today after leaders were unable ,o sway three holdout senators all objected to measures that would increase the budget deficit. joining us from washington is bloomberg's kevin cirilli. i feel like this is changing in real-time. the us the latest on where bill is. kevin: headlines crossing the terminal as we speak. the republican leaders do have the votes now for this tax bill. late last night, the drama unfolding on the senate floor with mitch mcconnell speaking to the senate proletarian saying the proposal put forth by rob corker regarding the so-called trigger point is not going to work. republicans are divided on that. said the trigger point is needed and tea party folks and others saying the way to raise revenue is not the another tax increase. all of this is moving fluid and expected to pass. what does it mean for midterm elections? johnke with representative and listen to what he said. >> do you remember the affordable care act and what happened after that passed? the promises made by the republicans in this legislation of going to be their downfall. kevin: democrats argue pouncing on this and suggesting that if some ultimately get a tax increase from the package, it could be republicans are doing in the midterms. lisa: do you have a sense of what the consensus is and how republicans are resolving the issue of the trigger provision and other controversial issues as it heads toward a vote that will pass? kevin: i am hearing they will get rid of that but it will come to the conference. once it passes the senate, they will have to recognize -- reconcile with what the house voted on and there are key differences. what to watch for is which has republicans will be named to the committee because they will be at the negotiation table to hammer out and craft the last minute specific line by line detail that will end up on president trump's desk. lisa: kevin cirilli, thank you. jonathan: bob michele still with us. you say, you always say i am wrong and he brings up a chart. lisa: he knows what he is dealing with. jonathan: i'm not even going to ask, just go for it. what do you want to show me? listened to you yesterday and you had a guest to said, everyone calls for rising yields and they have said that for seven years and they have not risen. i pulled up a chart of the entire treasury market. outstanding treasury, the loan 2012.was five years ago, this year, a yields on the treasury market have risen 30 basis points. there is a normalization process underway, where the fed has made it clear, if they are going to raise yields, they will run down the balance sheets. that is why i think this tax reform is so important. as you join away stimulus and markets normalize, you need some sort of fiscal stimulus to come into the markets. jonathan: how skewed is that chart by the front-end and short-term treasury? bob: the beauty of looking at the entire treasury market is it is not skewed in any way. [laughter] jonathan: we have been talking about 10 year yields and that is what everyone has said, yields are going high. i do not think we have had much debate on that. bob: and have corporate lending is done on the front-end of the curve. lisa: if you believe the economy is steadily expanding, improving, things are good, why not add leverage? go out there, by risky stuff -- buy risky stuff? bob: one, i think we should and i think it starts with the tax bill. i think the fiscal hawks are on. i am going back to reaping in the recovery close to 10 years. we have expanded central bank balance sheets. just get rid of them and lever the government balance sheets. lisa: i am talking as an investor, why not are a money -- why not borrow money, go into the lowest rated paper? are you doing that? bob: it is happening in a number of places. the first is companies are leveraging their balance sheet. they are borrowing enormous amounts of capital. the last few years have been record issuance future and they to invest butthat buying back shares and raising dividends or buying each other's. there is that leverage. it is true that when you look at returns in the market, their multiples of what they yield is. credits a lot of excess risk taking underway. year, iell you the last was like, do not fight it. in the last week or so, as we have had the selloff and the come back, we are looking at things a lot more closely. i will give you examples. i heard we were looking at a nonperforming loan deal from a new interim into the market that yield.higher in my reaction is, wait. we are going to go buy nonperforming loans -- lisa: european? .8? no, u.s., for you can go back to an analyst in the market for 20 years and this is their first securitization. issuance,me of the when you look at oracle, which issued in the mid-1990's, and recently,ibaba come you have to make that decision. who is operating model are you most comfortable with? and if something happens, who do you think will get you capital back? lisa: so you were buying alibaba bonds? bob: we passed on that. jonathan: considering where it was priced versus similar rated securities, it was wider. what did you not like? bob: this goes back to lisa's question. we are getting long in the tooth. there is tremendous normalization in the markets. you will not have that backstop of liquidity. down the roads, 12 months or 18 months of now, who are you going to be holding if you go into some sort of recession? are you confident you will be able to get your capital back from some of these? lisa: you said you have shifted. you started to get more cautious. are you ready to get underway tie yields ago neutral? are you shifting your allegations? bob: we are not. i still like it. i still think that high-yield credit spreads, we are in that last leg. we have had that last backup from 350 basis points to 400 basis points. i think now we are headed to sub 300. i think some of that rally in credit spreads and declining yield will be offset by rising government yields. to me, that is the last stage of it.in that stage, i want to know the issue inside out and act as a lender to company who i know i can get the money back from, rather than an investor and trader. jonathan: you sound a lot more cautious to me then weeks ago. what has changed? because you are saying investors were getting greedy waiting for this to blowout and come back in and spreads are not going wider? what has changed? ob: what has supported our view is the markets being drowned in quantitative easing. i know growth looks good, inflation is moderate and central banks are cautious. those are excuses to take teh cash -- the cash printed every month and put it into assets and i did not want to fight that. we are seeing the punch bowl being drained at a faster rate. when i think about what is going on with tax reform, i hope something does come through. but the interesting thing goes, how do central banks respond? are they going to feel they are way behind the curve? cap 25 basis points every other meeting, negative rates in europe, the bank of japan targeting zero on the 10 year, these are outdated and it begin to pull the punch bowl quicker? ashink next year, certainly, you get into the middle of the year, it will be more difficult selling for the markets. near-term, i do not want to fight what is going on. politicians underlying assets in the portfolio can withstand perhaps a more aggressive central bank. jonathan: i am upset we wasted so much time talking about bitcoin when they could've gotten to this with bob michele. ob: we put the excess liquidity out there. jonathan: you sounded like your boss. coming up, the president of the cleveland fed says the stock market should have investors worried. more on our exclusive interview, next. this is bloomberg. ♪ lisa: cleveland fed president says the economy is on firm footing into 2018. in an exclusive interview with mike mckee, she indicated the case for a december hike was coming together. >> i have been on that case for a while that we really need to be moving interest rates of gradually given where the economy is. growth there is at a sustainable pace. labor markets continue to improve. still with us is by michelle. a lot of -- bob michele. if the fed with a hike three foot or -- three times before times, people are saying that would be a policy error, do you agree? bob: you mean we will get it to 2.25 next year, or it should be zero under target inflation question mark lisa: this is a no -- inflation? lisa: this is a know, right? bob: loretta mester is trying to get the market chicken out at this. let's talk about inflation. marketng to get inflation. let's talk about inflation. the underlying data looks ok and year-over-year look soft. it here take the three-month annualized, what are you looking at? was wely the low in that know there was a lot going on with telecom pricing and energy. core cpi zero in may, .4 core cpu in may. what is it today? 1.9, 2.4 -- 1.9 2.4%. you just runoff, and that is not much. you are at 2% there higher. i think the fed has a lot of work. lisa: you think what to hikes? hikes nextk four year? bob: absolutely. alix: he is like, calm down , lisa. bob: tax reform and we are talking more than four. alix: really? jonathan: if the bill goes through, what are you looking for rates to be? bob: then i think the terminal fed funds rate is not to 2.25%. i thought that was comfortable real, --t it is because it is real, and i was open to having them cut to 1.5%. if you get the tax reform through, i think it is so stimulated for corporate america and retail consumption, i will raise that to 3%. in this cycle. and that is historically low. they will get to their 2% yield inflation target, so that is only a 1% real yield. as i said, i think there is a lot of normalization left to go. we have become far too complacent with it. just inflated assets. michele will stick with us. lisa: he was waiting for someone in the controller to go ahead. jonathan: go for it. opec decided to extend production cuts through 2018 but the no drama meeting may mark problems down the road. more of that, coming up. in the markets, some optimism that european leaders might have the votes. futures unchanged on the s&p and dow. this is bloomberg t.v. ♪ 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. ♪ hour awayabout one from the opening as we kick things off in december and round out the week with futures softer but will obsession lows. one senator in d.c. says they are hearing gop leaders and they have the votes for the tax bill. that report generating enthusiasm that takes that risk off story off a little. the story in the bond market is a little on treasury. the dollar stronger against the euro and sterling. sterling below 135. 1.19. backs of what are you looking for futures? bob: i think we are headed over to percent. -- over 3%. jonathan: you know i could at cut that completed the year before? of: there were a lot expectations this year of stimulus out of the administration. it did not happen and you had the markets surrounding. both of those things should change next year. it sounds like the news is optimistic about tax reform. , asink it benefits everyone well as the economy. there is some stimulus coming out of d.c. for once, and you are going to get c the supply ofash -- get the supply of cash been printed and then we will see who will buy treasuries. jonathan: you said if the fed has a lot of work to do, what does that mean for the 10 year? bob: i think over the percent. the flattening of the curve is interesting. i'm not perplexed by it. is normal when the fed raises rates, the long end plays, let's guess the term the fed will raise rates? right now, it is around two. i think it will move up to three or higher. jonathan: i want to give you are some headlines. here's emma chandra. emma: there has been an unexpected turn with the tax cuts and republican leaders are scrambling to save the bill. mitch mcconnell sent leaders home last night. they are looking for ways to offset the cost of the measure. more republicans are demanding the tax cuts not drive up the nation's debt. one senator says he is hearing that republican leaders now have to vote. a final vote is expected later today. the u.s. ambassador to the u.k. insists president trump and prime minister theresa may have a good relationship, despite the dispute over the president's tweet. no date has been set that the president to visit the u.k. telegraph,o the there were tentative plans for him to go to london next month for the opening of the new u.s. embassy but the trip is now off. the senate ethics committee has opened an inquiry into allegations against al franken. he asked for the investigation after several women accused him of inappropriately kissing and groping them. he has given no science he plans to resign. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. alix: thank you. in the oil market, rent is up .8 -- brent is a .8. they will expend the opec deal through 2019. and the bromance between russia and saudi arabia continued. here is what russia's energy minister have to say. all countriesat are pledging toward full conformity to obligations they are bestowed upon themselves, which is important to us. it also gives the opportunity to meet at the june meeting in vienna. situation atmarket best towards rebalancing and seeing the actions needed to achieve this. alix: joining us is yousef. did you get a read on why the russians are hesitant to commit to that full four-year? -- full full-year customer >> initial -- full-year? >> initially, the feedback we got where the russians were getting together more clarity. our understanding is that it did not really come to the surface in the public deliberations. minister,he russian what is he telling russian oil companies about this deal? they need to be able to put strategy in place. that is where the russians are coming from. at the moment, they are pushing that decision down the line until after 2018. alix: i also found interesting what does russia care more about now? is going to be stabilizing inventories? oryza going to be the back of the higher oil prices go, the more they have to sell rubles and by 4 -- buy foreign assets back, crippling them? which when will they care more about? yousef: look, there's no other way to say it, he is passionate on bringing levels down. that is what they're aiming for. they also have elections next year. there is thinking with some observers that they are basically waiting or taking any combative policy response off the table until after elections. some opec members who have not , we carrying their weight understand they have been the ones to put pressure on the group to include libya in nigeria. part of the agreement is to send out a strong signal that this group is here to stay and make an impact. alix: thank you for staying up with us. i know it has been a long couple days. and bob michele is with us. oil, what are you doing with it? i think it -- bob: is interesting, to me, it is about volume, price, what is the right combination and keeps revenue flowing? what keeps revenue flowing allows some shale investment but not too much and holds off alternate energy, or electric, for the time being. pretty reasonable agreement and was the obvious way to go. alix: can you be long russia and long oil given the longer-term issues of production cuts? a lot has to do with the capital account and currency conversion. we actually are. we are pretty optimistic on energy, holding these levels, particularly oil and we own the russian local debt. we like the yields. we think inflation is coming down, the central bank will cut rates. we like the combination of all of those, interestingly enough. lisa: what is your prediction for crude values over the next six months? number one. number two, how are you packaging that into your portfolios with overweighting energy stocks and bonds? bob: i hate to come back to tax reform, but if something passes, and that creates stimulus, you are going to see more economic growth. even the joint committee on tax -- lisa: let's say it passes, how much did they go up? $70,i think you will see $75. alix: but reform demand will not hold up if you see that. bob: we will see. alix: you think it will hold up? bob: i think there is enough economic growth globally. there is a lot of growth going on across europe right now. it is not -- what are we talking? brent or west texas? brent can get there. that is the benefit of having these production cuts and trying to bring down inventory. jonathan: there are canadians screaming at the television saying, what about us? alix: they are not screaming. there are canadians. do not to the accent. bring the -- jonathan: bring the chart up. dollar-canadian down by .9. bob, the data coming through real hard. unemployment dropping to 5.9%. gdp better than expected, as well. does canada need the high road price to carry on being successful? bob: i think they would certainly like it. needthink that they do some higher energy and commodity prices. to me, this is a symptom that the global economy is expanding rapidly. you look at the purchasing manager and what has come up globally over the last week or so, they are all high. manufacturing in europe is at an all-time high, measured by pmi. there is a lot of growth out there. central banks are going to lean into this. i think energy price will look ok. alix: west canadian select is in the discounted $17 compared to wti. oil prices have risen but not necessarily for canada, so they can post that growth without that discount? bob: that is why you need another year production cuts. to help bring all other energy producers up to par. i do not know, will that close? it should. will it stay at these levels? caps off existed for long enough. have existed for long enough. alix: you know what the headline was? lisa: i have a quick question. $70, $75 aoing to barrel on the heels of attacks plan and it passes, are you going to buy energy debt and stocks? bob: certainly we like energy debt. a lot of the energy companies have formed high-yield index over the last couple of years and have been restructured. they have already stripped down there operating framework. they look pretty good in here. alix: wow. that is a big call. bob michele, you will stick with us. you can tune into our colleague tom keene on radio. "bloomberg surveillance" can be heard in new york, the bay area, boston, and washington. you can hear the bowtie. this is bloomberg. ♪ ♪ emma: this is the hewlett packard enterprise greener. coming up, jim paulsen. this is bloomberg. ♪ now for your bloomberg business flash. an activist investor is targeting the largest dairy processor in the u.s. the firm says dean stock is undervalued and it may talk with shareholders about operations and strategy. the company is not commenting. officialsith state over the drug crisis. the maker of oxycontin is accused of creating a public health crisis by mishandling the drug. they are seeking a multibillion dollar payment to cover the cost of growing drug epidemic. and a billionaire is shaking up his hedge fund after the way of restorable's. they are closing their macro funds and letting investors should to the main bbi fund. --ce june 2015, paul tudor asset management has fallen to $7 billion. alix: breaking news from d.c. senator ron johnson's office is confirming he will support the senate gop tax bill. remember, there was an hour-long standoff over residual vote that would have sent the measure back to the senate finance committee because senator johnson wanted to make sure to offer amendments. now, it looks like his office is saying he will support the senate gop tax bill. some of the holdouts to pay attention to is senator susan collins of maine. she was also iffy in terms of property for individuals. we are looking at 10:00, maybe? lisa: we could still see 11:00 and we will bring it to you when we get it. jonathan: that was so unenthusiastic. lisa: i tried. alix: that was snarky. lisa: moving along. insurance companies and pensions are in a tight spot. they do not have higher yielding. what is a manager to do? we have one with us to discuss. us andhael is still with cliff, tliv for joining us. rates lower your assumed of return? cliff: it is down from the beginning of the year. the two-year treasury has moved up a lot. we do have yield curve being higher in the short in and low on the long end. credit spreads have tightened and index has tightened about 25 basis points. lisa: where do you go? cliff: high-yield market is tight, too. assetgo into less liquid classes, like we talked about yesterday. we are buying private debt, real estate mortgages, those things, which are adding about 100 basis points, a lot of yield to face. on the high yield side, we have been buying middle market loans in the place of high-yield. they had no liquidity though. we are comfortable with less liquidity. we want more yields. lisa: bob, are you comfortable with less liquidity for more yields and are you going into similar types of assets? have bethis point, you careful who your counterparty is in the issuer is. for us, it is interesting when you talk about loans, you are talking about rates quite a bit. today, that highlights the problem. it is not so much the credit spread. i think 3.5%, 3.25% is generous for high-yield at this part of the cycle. the thing is, we do not like percent very five that is a very old yield issue because that is what distortions created into the market. jonathan: they liquidity issue that cliff brings up, are you comfortable taking on more assets that are less liquid? bob: in certain areas, yes. i would be careful at this point in the cycle because if you do get more aggressive central about youhave talked have to know what you are holding and be able to hold it through the rest of the cycle. cliff: you have to do intensive credit work on the company's. you have to do rio due diligence went by -- real due diligence. lisa: everyone says they are doing that. cliff: that is where i started in 1985, so i think i have been trained pretty well. the other thing is doing director of origination. we are not waiting for wall street to call us. we are going over and originating deals. lisa: so have you hired anchors to do that? cliff: we hired originator people. lisa: have recently? cliff: we have some in u.s. in london. lisa: how much are you originating? cliff: quite a bit. lisa: is it something you feel more comfortable with the company because you are able to do due diligence and have a much closer relationship so that you can be comfortable with the higher risk and illiquidity for the higher yield/ ? cliff: it is a deep process. you go through the credit community to get approved. it gets announced a new do the work as you buy it. this is a weeks long's process. you do a lot of research. you get married to this investment. jonathan: this brings up something important, the amount of work you are doing. passive versus active. at this stage in this cycle, do you want to be fixed in fixed-income in any way, shape, or form in a passive strategy? cliff: i think it is a mistake to do that, particularly in high yields. if you look at returns of high-yield etf's, they underperformed the indexes. i think in high-yield, you are better served in the top quartile. lisa: how much money do you think you are saving in banking fees? ci=li -- cliff: we look at it as incremental spread. lisa: with the idea you are originating it, that would normally go to one of the wall street investment banks. this is getting around that process. cliff: we still work closely with investment banks. we still get a tremendous amount of opportunities and deals from them. we are just going out and getting more. i do not think there is that much more. but we are getting overall almost 100 basis points. jonathan: i want to bring in a question from a bloomberg user. how did you get comfortable with bank loans would the free cash flow potential at the interest reduction elimination? bob: that is a really good question because the limitation on the deduction of 30% is going to change the way a lot of companies fund themselves. it comes down to what are your alternatives? you are buying a diversified portfolio, getting a floating rate. if you do due diligence, you can be ok. this is not the market to start shotgunning money across all assets in the same asset class anymore. jonathan: cliff? cliff: are outlook is to be cautious and discipline. we are at an extended point in the cycle but we think there's spread a relative value in assets we are buying the public investments. liquidity in public investments is not that could. it is ok when markets are strong, but when markets go down there is little quiddity. lisa: the questionnaire is referring to the provision that limits the deduction of interest payment that high yields of rated companies have to pay. this has been a big lure for companies to leverage up. from your perspective, does this limit the attractiveness of leveraged loans, which are more heavily skewed towards us? limitations on0% interest deductibility go through, it has got to change the profile of the company that is going to apply leverage to itself and the four funding -- look for funding. near-term, it will not have much of an impact because that is already out there. i think the supply changes more going forward than the actual quality of who you might investment. cash: it impacts the free flow of a company and you have to pay higher income taxes and it will have less free cash flow to pay its interest and debt service. alix: this is how it feels when i talk oil? i love that. i learned so much. i left the nerds run and it is awesome. always a pleasure. if you have a bloomberg terminal, check out tv . interact with us directly. go to tv on your terminal. you can do that. this is bloomberg. ♪ jonathan: a possible government shutdown arm and keep things in washington next week. michael mckee, what have we got to look for? michael: everybody will look at jobs numbers that will because they think the federal go ahead. if the government shuts down, does the fed go ahead? we do not know but there is a lot for them to do by the end of next week, including the government funding bill. they will probably punt on the debt ceiling but they have a number of other issues and it is extraordinary how much can go wrong between now and midnight next friday. jonathan: let's deal with the here and now. it looks like the fiscal hawks are slowly capitulating and saying yes nbc michael -- yes in bc -- d.c. michael: we have ron johnson saying he will now vote for the bill. we do not know what it will cost and how they will pay for it, that, you only have corker and flake who may vote no. if they get one of those, the bill will probably pass. mckee, thankhael you. , jim paulsen, cheap investment strategist -- next, jim paulsen, chief investment strategist area this is bloomberg. ♪ ♪ jonathan: the senate delays voting on its tax bill. the gop slowly convinces remaining deficit hawks. remaining optimistic. the s&p 500 on the longest winning streak on a monthly basis since 2007. extends gains after getting the green light from investors. from new york, good morning. this is "bloomberg daybreak." alongsidehan ferro alec steele and lisa abramowicz. -- alix steel and lisa abramowicz. the s&p 500 ticking off in december of little softly with futures little down. the dollar showing little strength against the euro. treasuries had a much bigger bid after yesterday selloff. we're down just a basis point to 2.40. a lot of news coming through this hour, given the auto sales. let's gets alix steel. alix: auto sales coming out. fiat chrysler about the highs of the session. their november u.s. auto sales points ofthree percent. not as bad as anticipated. the new jeep compass sales down -- up 34%. the best ever november sale for that car maker. auto sales had been a little weaker in the past. we'll see how it lines up playing through the morning. other stocks to pay attention to -- mylan and teva. amazon is said to be in talks with generic drugmakers, specifically with mylan and the generic unit of novartis. if amazon hasr made a decision to enter drug sales or home sale business, but 10% of pharmacy profits are at risk if amazon moves in. those stocks moving higher. cosmetics down by 6%, missing estimates. thiss down 13% overall year. qualcomm running down 1.5%. broadcom said to stall making a better bid to the current bid is $105 billion. that is about $70 in cash and stock. stock trading below at $65. they will wait until march's board meeting at qualcomm. and the repertory issue very complicated. jonathan: thank you. nobody thinks the m&a action in that sector is over. in d.c., senate republicans, they have handed a lifeline by a couple of individuals. senator ron johnson, previously holding out against the tax bill, now says he will vote for it. senators corcoran and flake are still holding out. joining us now is bloomberg's kevin cirilli. re: hawks slowly capitulating this morning -- are the hawks fully capitulating this morning? kevin: looks like momentum is on the side of republican leadership and the president. there is a suggestion that if senator johnson's trigger provision will not work. all attention turning to the timing of this vote, which will either be leader today or early next week. into whoep beyond that republican leadership in the house will put on the conference committee to work out the last-minute details in the line by line of the senate bill in the house bill and getting it to the president's desk. jonathan: michael mckee joining us as well. will we see any last minute changes for this bill? michael: both. we are slowly getting enough votes, but this bill will change until the last minute. the last thing they do is called whichanager's amendment," incorporates all of the last-minute bills s deals that have been made. it guarantees you nobody on the senate floor will actually know what they are voting on. however, it is a method to get it through. they have not read the bill, because the substitute comes in. getting these deals made -- susan collins is still a holdout. thewants the senate to get $10,000 property tax exemption cap. there is still a long way to go before this bill passes. jonathan: kevin cirilli in d.c., if there is one contentious issue left on the table, what is it? kevin: definitely the deficit. i senator corker, who we have been reporting has a difficult relationship with the president to begin with, what exactly is he holding out for? but we will be talking about the state and local tax reduction when this gets to conference. there are several republicans who want to see last-minute tweaks on that front as well. >> where does this leave the jt se -- jtc scoring we saw yesterday? michael: since republicans do not want to believe it, they will it ignore it. important feature -- the way the bill was cut short it. it allows them to say that the bill does not create deficits in 10 years -- all of these one true in dollars is within nine years. it complies with the byrd rule to get this through without any democratic votes. michael mckee all, great to catch up with you. and kevin cirilli, are very busy day for him, i am sure. investors coming back and buying a rout aggressively -- the dow through 24,000. but the delay in the textile could bring it to a halt. joining us now is jim paulsen, leuthold leading chief investment strategist. and a luke kawa, who is not allowed to talk about canada for at least five minutes. i have been told many times that the tax bill does not matter. then i came in to a bit of doubt and futures a bit softer. it must mean something. jim: it certainly has the last couple of days. the flow ofn success waving through what the day-to-day out is for the last couple of months. as we get to the end of the finish line, it is having even greater impact. it also comes at a time when there is a breakout and optimism and a mechanism of how good the fundamental story is in the economy and earnings. it is at a time when optimism is already rising. it is starting to have even greater impact. i do wonder if it is something you may want to buy in the room or sell on the news when it finally gets past. jonathan: your hearing more of that. all of the research goes through you at bloomberg, from wall street. what are analysts saying? luke: one of the more interesting things i have seen is one group that got very optimistic and brought the day up, especially in tech names, where mom and pop. they were really leaping into those names, some of the bigger stocks that have sold off, as well as bitcoin-linked names. also, -- we do not get grandma yet. but mom and pop. they are interested in that. the two things i worry about this textile hits a roadblock and stumbles over the finish did they pick the right stocks? >> where you buying tech stocks -- were you buying tech stocks? jim: i have been a buyer of tech, but that does not necessarily attract me on a single day. i sort of subscribe to the idea -- two things. i think it will be more difficult next year for stocks. thatimportantly, i agree we are probably setting up for a shift towards more value and capital goods stocks come away from consumer and growth stocks. if anything, i have been picking more of those areas here on dips . to dology will continue ok, but it has done so well that i am ok with trimming a little out of that very popular area of the market, letting people have it when they evaluate so highly. may be looking for another opportunity to come back to check next year in a bigger way. alix: how many calls are you hearing about by tech, cell technology? luke: a little bit. theme is that it is time to trim tech. alix: what is your call? sell tech, buy energy? or buy defense shorter-term? jim: i think both of those are fine. i like energy a lot. i like capital goods. tech is in that. but also, materials are -- and energy are in that and i would be fine with the trade of selling popular tech and buying contrary and energy, which i will have a good near neck steer -- next year. we might have a correction. if we do, that may be a good time to come back into by tech again. jonathan: luke kawa? luke: one thing i saw pulling up my screen is another and people were apparently floating into -- biotech. inflows in the billions and billions. i wonder if that has to do with tax reform or if we are just trying to find the next real highflyer. lisa: just to be clear, it is the mastec ishares. jonathan: thanks did a lot of man's planning -- mansplaining. lisa: womansplaning. jonathan: still to clearing the way for invest sirs to bid big invest big on the cryptocurrency. this is bloomberg tv. ♪ ♪ alix: some breaking news out of d.c. not related to the tax bill. michael flynn will plead to false statements in d.c. court. false statements in bc court. i do not want to speculate, but this is an overhang that does not team to matter for investors in d.c. jonathan: the former national security advisor resting a deal from the former nsa chief -- wr esting a deal from the former ns a chief. humming along in the background is this probe from robert mueller. alix: i should point out that michael flynn lied to fbi contacts about communication with russian envoy's. to your point, when does it start to matter? the: we have to mention "new york times" reporting that the president did pressure certain senators and republicans , generally, in congress to drop the probe on some level. unusual move. you have to wonder, if nothing else, what does this do politically to the president's clout, when a lot of the congresspeople know that this is an overhang and probably limiting some of his influence. alix: but does his face care? jonathan: what is a need for policy and for markets? for policy, not much. they needthe midterms to get through as well as the tax bill. in many ways, this saga has not really damaged policymaking so far. the tax bill will still go through, if you think about it -- lisa: i actually do not know if that is the case. jonathan: tell me why. >> the support behind the president, if you look at the polls, has gone down. he have to wonder whether to align yourself as a republican wonder,-- you have to if you are a republican senator or commerce person, whether to align yourself with him. alix: yes, because his base is still with him. to your point about the markets -- s&p futures at the highs of the session. jonathan: this is not a president's tax bill. lisa: so you're saying, let's say there is something to indicate the meuller investigation -- the new investigation is looking for something, it will -- jonathan: as an investor, you have to look at what is in front of you. it looks like the tax bill will get the seal of approval. alix: to recap, michael flynn apparently lied to fbi contacts contacts with russian envoys. so we are talking about markets and policy. let's get the perspective. jim paulsen of blue hold is with -leuthold--- jim paulsen of leuthold. jim: a lot of people in the republican party would not mind if the president exited and the vice president got into the lead chair. i am not so sure the investment markets would be that upset overall. you could make an argument that more of the republican agenda, economic policy, would be able to be passed without trump in the lead chair. i am not so sure the markets will be that upset about it. lisa: so are you saying that is the president were to, for some reason, exited the office of the head of the united states, that markets would rally? jim: it is possible. because i do think there is a good check of the market that are excited that republicans got the tri-party power and what could be done in that, promoting more free market laissez-faire approach, which i think the market on average likes more. in some sense, they have been disappointed by some of the antics of trump overall. but more importantly, he is not really a true republican. it sort of neutralizes the tri-party power that is where. -- that is there. wall street does not like volatility created by that, but i think there may be a lot of the market that would be happy if the last half of this term would be ruled over by the true tri-party power of traditional republicans. alix: over the last year and a half, we have seen some sort of political event -- trump getting , french brexit elections -- and we have seen investors get hurt because we did not see long-lasting impact. do you feel the need to protectors of against certain things, or do you ignore it and focus on a more fundamental view? jim: the latter. a lot of the other uncertainties, including things like north korea or political uncertainties, you have already protected yourselves against those things. its called -- it is called diversification. stick more to the fundamentals, whether earnings or economics momentum is rising or falling. stay away from a lot of events that are popularized but not necessarily predictable. most of the time, they just grind forward without having any big final impact. alix: former national security advisor michael flynn has been charged with lying to it at the yacht agents as part of the broad u.s. investigation into russian meddling -- lying to fbi agents as part of the broad u.s. investigation into russian meddling. he is inspected in court today. robert miller had already secured indictments against paul manafort and his deputy. for more, we want to get to kevin cirilli. what is the chatter around in this? kevin: i was just reading these court documents. general flynn charged with making false statements to fbi last january, so several months ago, january of 2017, when robert mueller first kick started that investigation into high gear. we should note the timeline. it was just the other week when, reportedly, general flynn's attorneys stopped communicating and working with the attorneys for the administration. that was interpreted as a signal that general flynn was looking to cooperate with bob mueller's investigation. now we have this situation where it is reported he will likely plead guilty later this morning to making false charges to fbi officials. he joins paul manafort, richard gates, and george papadopoulos in the first round of charges that came down several weeks ago. alix: we are also joined by greg pharaoh of bloomberg's legal team. what do we know? greg: just what kevin said. he is expected to plead later this morning. hugely significant. alix: why? was there inynn the beginning. the actual plea involves statements he made to the fbi. -- of thehis the guilty plea he will answer -- is that the most serious of some of the crimes he was accused of, or speculated to have committed? greg: this appears to be the first step in a cooperation agreement. lisa: he is agreeing to plead to this, which is the lesser of some of the offenses, which means he is operating with a mueller investigation. this means it is the entree point, correct? greg: yes. alix: how far removed are we from the president? greg: this is closer. unlike paul manafort, who was described as just a consultant, it would be difficult for the president to distance himself from michael flynn, especially now that we also have, anecdotally, what james comey to, that the president put pressure on comey to look past the michael flynn investigation. jonathan: the news significant, but is it surprising? surprising in terms of it happening so quickly. it is not surprising given what happened two weeks ago. around thanksgiving, we learned flynn,'s lawyers, had broken contact with the administration. it also appears prosecutors probably used leverage against flynn's son who, for some reason, was under investigation. that is sometimes a way to get people to come into cooperate. >> who is next? greg: we will see. lisa: in your reporting, where does the trail continue? greg: now, this brings it to a higher level. flynn dealt and met with jared kushner, with the russian in december. this does take us to a new realm of the mueller probe. ,lix: bloomberg's greg farrell thanks for breaking it down. kevin cirilli in capitol hill as well. we are looking at what it means for the fact. if tax or form can get through, what will it mean? bob michael of j.p. morgan says we could see five year if tax reform goes through. jim, what do you think? jim: i never really understood why we are ringing a major fist stimulusa major fiscal . it is an odd time to bring a this goal package when we already have some concern about overheat and inflation. we will have to see. i still think, when this gets passed -- it looks like it is going to -- it will be fairly watered down. i think the net fiscal stimulus impact maybe a lot less than we might think. that may be a good thing, because it will keep pressure off the fed. init truly stimulates growth the economy, i think that will accelerate the fed's path. it will aggravate bond vigilante fears. it could end this recovery quicker than what may be the case. jonathan: breaking news again for auto sales. fiat chrysler for november, auto sales down 3.7%. ford crosses, november u.s. sales up 3.7%. 7%. up alix: total suv's -- 13%. lincoln brand name down. bring that -- where we trying to make that cool again? lisa: you saw the advertisements is an, but this interesting debate. are we seeing better-than-expected auto sales because of the hurricanes, or is it just picking up in auto sales? will be: jim paulsen sticking with us. coming up, we bring the opening bell. all-time highs. out november on an eight straight month of gains. the longest monthly winning streak since 2007. and it could have been a clean sweep for 2017 except for march. the news continues to bleed through from d.c. on the policy side of things. it looks like the senate -- senators on the republican side may have the vote to get the bill through. treasury yields finally breaking out of the very tight ranks it has been named. yields down by a single basis point. well off session lows. in the fx market, the dollar showing a bit of showing against the euro and more against the pound. this is bloomberg tv. ♪ is this a phone? or a little internet machine? [ phone rings ] 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. choose by the gig or unlimited. and ask how to get a $200 prepaid card when you buy any new samsung device with xfinity mobile. a new kind of network designed to save you money. click, call or visit today. ♪ about 25 seconds from the opening bell in new york city. futures for more on the down by about 1/10 of 1%. they come into friday closing out november at an all-time high in the s&p 500. dow down by 1/10 of 1%. nasdaq futures down by about 44 points. we closed out for an eighth straight month of gains on the s&p 500, a winning streak on a monthly basis. you have to go all the way back to 2007, early 2007, to match. hearing the opening bell is open about two basis points. the dollar index of about 1/10 of 1%. stronger against the euro and a little stronger against the pound. to comees continue through. gm coming and down 2.9%. the estimate down 1.5%. miss for gm.of a let's get you the cash open. here is alix steel. alix: paring exposure to record high levels, the dow jones up by about 1/10 of 1%. the nasdaq down by 4/10 of 1%. the tech selloff resuming in asia and spreading to new europe -- to europe. interesting how it will sort out from fundamentals. and fiatotors, ford, chrysler. gm coming and worse than estimated, sales down 2.9%. cut 7%. fiat chrysler up 1/10 of 1%. sales were down by 3.7%, but it was less bad than expected. , suv sales coming in a strong. is it payback from the hurricanes or is it really recovery and growth? taking a look at tech stocks, we want to go to alibaba. looking at alibaba being down for a fifth straight day. overall, chinese internet stocks not hit after the selloff in tech yesterday. macron as well. -- micron as well. key bank crediting lower man prices -- nan prices. taking a look at where we are now versus where we will be -- this is the time of year where we get our s&p forecast. this white line is the s&p as of yesterday. bottom ofine is the activated s&p estimates. we are looking for a 9% gain -- analysts are looking for a 9% gain in the s&p over 2800, versus where we are now. not necessarily factoring in any kind of tax reform. bloomberg intelligence says the 2775.alue is what will the risks be? jonathan: thank you. joining us is gina martin adams, bloomberg intelligence chief equity strategist and jim paulsen of lewd hold -- leuthold. -- can you tell us where you're more cautious? jim: one of the big challenges facing investment managers today is left -- let's say you are cautious. normally, you would say to go to stable eddies, but they have been leading this bull market, because there is a -- they are highly valued. and they are also the most sensitive to rising interest rates. they will probably do the worst if the 10 year yield goes up. i think you have to stay away from those defensive sectors. i would be more inclined to stay with capital goods sectors. one of the catalysts of the problem next year would be overheating the inflation and higher yields. -- energye entity and and materials and industrials, besttechnologies will do in that. i would also put financials in there, which is the one sect or that has really shown it will do well for a while it fields go up. jonathan: i cannot tell you how much research i have done the last couple of weeks. it says it is time for late cycle behavior. is there any reason to suggest it will not be the same this time around? gina: the one thing that could really get in front of the late cycle trade is going to be a capex comesee through. what we are seeing is getting into that are capex next year. that is a potential upside for stocks. if you do not see that follow through, then the late cycle stuff does not work. it is more of the trade that we have out on for a while, which is quasi-the -- quasi -defensive. but what people are balancing is the probably do have upside from fiscal policy, but the downside is if we get upside in growth, you probably have some inflation pressures, have rising interest rates, which offsets that boost. you have to balance the dual , which results in a slower appreciation of stock prices. lisa: what do you make of it this story on the bloomberg this week that was looking at the big u.s. companies and how those polled say they will use the money from tax breaks to buy back shares and deliver a boon to stockholders? how did that trickled to the economy? gina: it does not -- lisa: but it would not necessarily lead to inflation. leads to at potential wealth effect. this is what we saw with into thousand 4, 2005. we had a repatriation event. that is a separate story from ,mproving durable orders today not the fiscal story. there are a couple of things you want to distinguish. there is some underlying improvement in growth. we get the tax boost to improve that, and will they send it on shares or start spending it on capital equipment? jonathan: can we break out of the regime we are in? low inflation, low volume, steady returns a past -- across pretty much every single asset class? jim: i think we could change that. i kind of lean that way, that we will drop the employment rate below 3% or 4%. it is interesting to me that we are at full employment, and we came in thinking we would grow at two-ish. we find we're growing at three-ish. we came into the year thinking we were one of the only things growing in the world, and we're exiting realizing it is a synchronized global recovery. it came at the wrong time for the u.s., which will face more overheat pressures. the 10 year yield right now is 22, 20 3, 25 basis points from eight to one half to four year high. the wage inflation rate has a chance of breaking over 3% next year. the unemployment rate will have a three handle. the dxy dollar index is about a point or one point and a half from a three year low. if you put all of those together sorte same time, they all of kind note more inflationary possibilities. i think the market reaction to that could turn more negative. alix: we also want to go into auto sales. gm auto sales down 2.9%, worse than estimated. had nicesler and ford moves in november. fiat chrysler down less than expected. ford as well, rose in november, almost double what was estimated. david welch joins us now. what was the cause for this? david: these are pretty solid numbers so far. you are seeing pickup trucks and suvs selling well. fiat chrysler has a couple of them that did well, the cheap comp this being one -- of the jeep compass being one. general motors saying there was a seasonally adjusted rate, which has a solid month. ford powered some of their increase in the month, but a 7% increase is still pretty good. gmc division, the which is usually strong, because all it sells are pickup trucks and suvs. unusually soft. but gm is saying they just sold fewer of their vehicles to rental fleets. alix: how much of the sale strength was because of discounting? david: i think for has some the aggressive discounting. we have not seen all of the data on who is spending what on incentives, about -- but we are getting two-year and -- we are getting to year-end. you will see a fair bit of spending this month and next month. so far, pretty solid. alix: thank you, bloomberg's david welch in detroit. jim leuthold -- jim paulsen of leuthold and gina martin adams stays with us. softern: we are a little as we approach the tax vote that could come who knows when. futures pretty much unchanged throughout much of the morning. the dow down by 36 points. from new york city, this is bloomberg. ♪ ♪ emma: "bloomberg daybreak." coming up, the former cbo director joins us to talk about the tax overhaul. this is bloomberg. ♪ alix: looking at the bloomberg, is this regionals or is it big banks? you can see these gray bars here , one being the relative performance of the s&p versus performancencials in yellows. the regionals really taking the cake over the last few weeks. joining us now is gerard cassidy , covering more than a dozen banks at rbc capital markets. still with us, gina martin adams, and jim paulsen of leuthold. what is your take? taxrd: we saw, when the reform bill was moving forward, regional banks did well. that is because they get the biggest relief. some regional banks could see earnings grow 20 plus percent just by seeing the harbor tax rate going from 20% to 30%. the bigger issue is revelatory relief. -- regulatory relief. what used to be a confrontational environment is not conciliatory. -- is now conciliatory. lisa: given the rally we have had so far, are you buying regionals now, or do you think the rally has exhausted itself? jim: i like the financials overall. i would continue to buy that group. i am ok with buying regionals. they are getting and it struck pop because of the -- an extra pop because of the tax debate. you wonder how much more elevated they will be a month from now. the groupoup, i think will continue to do well. if the 10 year treasury does rise above the percent over the next year, i think this whole sector will continue the lead. this is a trifecta of lower taxes, lower regulation, and restoring lower yields, all of which the financial sector is one of the biggest beneficiaries. lisa: i want to bring in comments from the st. louis fed president, saying there is a not insignificant probability that the yield curve will revert over the next year if the fed continues to hike rates. this is bad for banks. this reduces their margin. how much does that offset the rosy outlook we are hearing? that it in not and next locations. the expectation is the yield curve remains about where it is through the next year. growth through the bond market. if we were to see in version in the yield curve, it usually takes about nine-months for that to feed through. that is not a good thing for financials. we see financials as relatively elevated, because the fundamentals are supported. the yield curve is still upward sloping. it has not converted yet he had an inversion in the curve is a warning sign and should we expect it. jonathan: i was going through your analyst calls. you are well rated across several banks. congratulations on that. but compared to where we are, we are really close on several of your target prices right now. you are target prices on the 12 month horizon. we are at 1.04 on jpmorgan. you are at 1.05. where is this going? gerard: good point. i was looking at the target prices last night. when we raised them at the end of third quarter results, i was getting a little nervous. if tax reform goes through, you for use earnings miss and many investors increase, which will enable us to reassess target prices. the other thing we have to keep in mind is it is hard to quantify the regulatory changes that are coming. but it will be positive. if we get stronger economic growth, leading to better margins, we could see earnings estimates increase. jonathan: let's be clear. tomorrow, if this tax bill goes through, to see how this will reconcile, you will sit down and update forecasts solely happen what happens in easy -- in d.c.? gerard: the short answer is yes. to use a bank out of buffalo, their taxif you lower rate down closer to the statutory rate of 20%, earnings go up over 20% just from doing that. the average for the top 20 banks will be around 11% to 12%. clearly, if this goes through -- jonathan: and without it, we are flat. going nowhere on jpmorgan. gerard: then we would have to reassess, if there is no tax reform. as we saw this week, not only was the chairman elect's comments very positive, tax form really helped drive stock prices higher. alix: your top three picks and how does it change from these -- idc -- d.c.? gerard: bank of america and citigroup. and pnc. alix: how much risk are banks taking on right now? i would say that the risk environment is still not excessive. we hear about subprime lending in auto, but subprime auto, the vast majority of that is outside the banking -- lisa: like portfolios outside market making of corporate debt. gerard: in the capital market side, there is more risk than traditional lending. even here, the banks have been held back by the regulators. i do not think we are anywhere near where we have seen in past peaks. we can talk about that another time. of rbc capital markets, gerard cassidy. jim paulsen of leuthold group. and gina martin adams. this course as follows. just a little softer, down by almost four points on the s&p 500. on the dow, negative almost 40. this is bloomberg. ♪ ♪ anathan: tax reform, potential government shutdown, and michael flynn has been potentially charged in the mu t and for more, kevin cirilli -- let's get back to that flynn news. what have we learned? kevin: the bottom line is flynn now cooperating with bob mueller. this will continue to have new development for the next six to nine months. jonathan: let's get back to the headline. michael flynn to plead to false statements in a pc court -- in a d.c. court. how significant is that? i talked toource said this is gripping. outerthe president's circle -- it shows bob is not playing games. that he is really looking to get make falsehey statements. and any person he is interviewing, whether a low level staffer or a senior, like michael flynn, will have to cooperate. lisa: we knew that flynn was cooperating with mueller to some degree. isond just speculation, what he looking for concretely that gives us a sense of who is next? kevin: when you look at the general flynn joins, with the -- in terms of charges, with paul manafort, rick gates, george papadopoulos, this is expanding. we should know the financial dealings of folks like paul manafort and general flynn. these are folks who did business with the pro-russian ukrainian officials. that will definitely reverberate across washington in terms of disclosures, in terms of folks disclosing who they are doing business for. alix: thanks so much, kevin cirilli p for moore, andy harris -- for more, andy harris. what will unfold in the next few hours? can you hear me? it looks like we are having some thenical difficulties, but idea we have been talking about over the whole morning is what about this is political, what about this is material in terms of tax reform and what they can get done in washington. what will this end up meaning for the midterms? lisa: i found it fascinating the jim paulsen said that president leaving the white house could end up being a boon to the market and when you talk about the tax plan, you think about that is being driven by senators and representatives, not driven by the president. to kevin.let's get as far as they run to get taxes done, who is left to fall? get out ofill likely the senate if not today then early next week to give the conference is where folks need to be paying attention, especially the last-minute wrangling between the senate version and the house version, and was on that committee. and we are talking taxes and general flynn, but they have to pass a partial government funding bill by next friday. what i am hearing is that they are likely going to kick the can until december 22, which means the holidays here in washington will be a lot of fun. jonathan: how many days is left? kevin: they have to pass it by december 8. then there is only about a week and a half or two weeks before the holiday recess. for those in the business world watching, they can have all nighter sessions. it will get dramatic. jonathan: does anyone want heaven's job right now? lisa: no. kevin: i live for this. [laughter] jonathan: i know you do. all-time highs at the close yesterday. stocks this morning just a little weaker. down 1/10 of 1% on the s&p 500. "daybreak" team, thank you. "bloomberg markets" is next. ♪ julia: it's 10:00 a.m. in new york. i am vonnie quinn. from our new european headquarters in the city of london, i am mark barton. welcome to "bloomberg markets. vonnie: we will be covering michael flynn developments, due in court. also, the tax bill due to resume at 11:00 a.m. eastern. here is abigail doolittle. abigail: we are looking at a basically in-line trend for november. isn manufacturing, the print came in at 58.2. the survey was calling for 58.3, so basically in-line. this is relative to october, 58.7. a relatively higher reading. anything above 50 signals growth, below 50, contraction. above 50, growth. at bloombergteam knows that since the election last year, we have seen a rising trend.

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