tv Bloomberg Surveillance Bloomberg December 27, 2016 5:00am-7:01am EST
monte dei paschi needing 8.8 billion euros to bolster its balance sheet and shares remain suspended. obama said he could have beaten trump in the election and hillary clinton played it too safe. trump says no way. the shubert may have to write down several billion dollars related to u.s. nuclear -- toshiba may have to write down several billion dollars related to u.s. nuclear units. i am francine lacqua in london, michael mckee in new york. the and 27th of november means the stocks in london are closed and hong kong is closed. we can take stock of what we want for 2017. i love president obama saying he ten donald bea trump and trump saying no way. michael: trump did not take the holiday weekend off. some made sense, some did not.
interesting to see what effect this has on the markets. we have about four days left for you to get your portfolio in order for the final close of the year. francine: i do not know what we do, whether you bet on policy at -- top you listen or these indices going higher -- populism or whether these indices go higher. found one ofa has the flight recorders from the military plane that crashed in the black sea. all 92 people were killed. officials say the crash was unlikely to have been caused by terrorism. president-elect donald trump is questioning the effectiveness of the united nations. in a tweet he wrote the yuan has great potential but has become a club for people to have a good time. pledging to work for a cease-fire in syria.
turkish authorities say they betweenilitate contact the syrian government and the opposition to end the civil war. to seek a truce in syria and hold peace talks. in germany, a new poll shows they believe -- 50% believe angela merkel will be able to deal with the problems ahead. merkel is running for a fourth term. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. michael: thank you very much. four days left to get your portfolio in order. here is what the markets look like heading into those four days, with smp footers -- it -- s&p futures lower, dow futures lower as well. euro-dollar is trading but rarely so. crude oil, another day higher
following last week's winning streak. german two-year yields are near their lows of the year. in chineserations as everybody waits for a seven handle. dollar-ruble, if you are going to be vladimir putin's friend the ruble will do well. in russia and futures, i will tell you about that in a minute. they are down today but up 14% since the election. francine: i like that we look at ruble, probably one of the most geopolitical interesting regions in the world for 2017. i did actually not put european stocks because the u.k. market remains closed.
dollar rising against most of the major currencies. oil, continuing its longest winning streak in four months. gold, 1143, extending some of the games. i put toshiba, i know it is closed but we are putting a report to find out what happened. in a closed it lost 11% because of the nuclear unit posting losses. michael: here is what i was talking about, donald trump tweeting at since he was elected there is a new hope in the world. the stock market is up 10%, did not say what market he is referring to. if you look at the major three indexes in the united states, none of them is up 10%. dow, you cannot see the number at that red arrow that it is 8%. the s&p is up about 5%. or the 10% ist up the russell 2000. question is, is he a small cap
guy? he is a small hands guy but is he a small cap guy? francine: i like that. chart, this is the baker hughes oil ranks. rigs.s -- in blue you have wti, in purple brent. it was stuck in this range and opec decided to do something. the price of oil is still going oilrig -- the oil ri g also going up. michael: that may be the story of the year going forward, what happens with oil. advisersined by capital manager chuck lieberman
and sharon o'halloran. i want to start by thanking both of you for coming in on this holiday week, and ask you both question about the topic we cannot get away from, donald and twitter. there used to be a tradition in the united states that we had one president at a time. the president elect kept his mouth shut until he took office. what effect do you think this is having -- is this having on the world? do you as an investor, chuck, pay any attention to this? , it is having an impact because all of a sudden we are seeing a policy agenda taking place before someone is actually in the position to implement that. that is confusing. you have a president that is in power who is closing out an agenda and passing legislation and so forth, and then you have
someone coming in trying to push an agenda. therefore we are not having what is called a smooth transition of power, and that is confusing the markets. michael: are you confused? look: no, you have to ahead. clearly we do not know what trump will get from supporting and the like, but it is clear he will push into certain directions and the magnitude is unclear but the direction is very clear. there will be an increase in government spending, on infrastructure and perhaps on defense. there will be a lower tax structure on consumers and business. obviously, that is positive for equity markets. some of the regulations, we do not know which ones he will get through but whatever deregulation he gets is going to be very positive for those sectors of the market. showed: what my chart was a big rise after the election, and then it sort of flattened out.
the gains have sort of flattened out. did the market get a little ahead of itself since we do not know exactly what he's going to get? chuck: that is a judgment call. i suspect the markets have not gotten ahead of themselves and we will get a lot more than is currently built into the market. if you assume the tax rate on corporations goes from 35% to 25%, that is a 15% increase in after tax corporate profit. stocks have gotten cheaper if trump in fact does get a tax cut of that magnitude, and he would like to get more. sharon: i think it is predominately just a balance from uncertainty over the election, and that is all you would have seen from whoever took office. what do we know for certain for 2017? are we going to see more populist movement? sharon: public movement --
francine: populist, i do not know if you can hear me. sharon: yes, definitely we will see populist movement. the reflection on the russell was a very good notion of what is happening, small business moving. even the reduction in the doporate tax, the corporates not pay the 35% on average so you will not see the full reduction of that advertised within any profit -- amortized with any profit. yes, you should see more populist movement and you should see more realized in both small businesses, in the pushes towards different types of policies that are going to take -- theand there will be question is whether it goes to minimum wage or other types of policies.
that is unclear in the populist types of movements. francine: if we brought in it out and you look at the world, br seem to suggest -- if we oaden it out you seem to suggest we will see a rise in equities but because 2016 was predictable -- unpredictable, are you not expecting 2017 to be even more unpredictable? chuck: we certainly have a lot of uncertainty and we do not know what he is going to push for. ,e has put out so many ideas and obviously you cannot get everything through congress instantly, so it will be him prioritizing what he wants and seeing how much democrats push back. i have already seen articles, including one on bloomberg, suggesting the democrats plan to push back pretty hard so it is unclear what will emerge. as an investor, you have to
think about what the risks and probabilities are. it is easy to come together toward the idea there will be a lot more stimulus for economic growth between tax cuts of unknown magnitude, spending of unknown magnitude, the regulation of unknown magnitude. base -- if they all are reinforcing one another, it promotes stronger economic growth. , sharon chuck lieberman o'halloran staying with us for the hour on bloomberg "surveillance." john mccain saying that there is no doubt about russia hacking the u.s. those are live pictures, he is speaking in estonia. needsd more investigation to be made and has called for an independent commission to investigate. this is bloomberg. ♪
francine: this is bloomberg "surveillance." francine lacqua in london, michael mckee in new york. let's get straight to the bloomberg business flash. taylor: toshiba could have a write-down of several billion dollars on u.s. nuclear operations. they said they will disclose the impact on earnings as soon as possible. it has to do with the westinghouse electric unit. the company's president says he may reconsider the future of nuclear. monte dei paschi needs about $9.2 billion in capital. that is based on the results of a stress test. on friday the italian government said it would put as much as $21 billion into monte paschi and other banks. they failed in their plan to raise more than $5 billion from
investors. that is your bloomberg business flash. sticking with european banks. francine: we are, and we are talking about monte paschi. let's get to dan liefgreen in milan. .alk to us about monte paschi once again halted. are we expecting news in the coming days or do we need to wait until some sort of resolution? think, given the holiday vacation period, i do not think we will have any major developments. the important thing here in the ecb's letter that the bank's knowledge, number one was that it is indeed regarded as solvent. that is important to meet e.u. rules about applying for aid under the so-called precautionary capitalization program. the other thing that was interesting is this larger than expected number of 8.8 billion
euros. the bank had been seeking only 5 billion in their market capital plan that failed, for example. us first of all, are we looking at some kind of government intervention with the bailing in of creditors, who are basically italian families. the bundesbank president saying he should not once -- want some kind of hasty resolution. do you think they will take their time and figure out another way of getting money to the bank? dan: i think they want to get this right, obviously, and they have to do it in unison to meet the e.u. competition rules, and obviously to meet the ecb's rules as well. i think before they actually put in motion the request, they want to get the number straight. what the ecb is telling them is that while it is still solvent, they are concerned and made a
specific reference in the letter , they are concerned about the liquidity level in the period between november 27 and december 21. or has been a worsening situation and they have taken that into account in the numbers. michael: what happens under the plans being considered, to the junior bondholders, the bomb and popinvestors -- mom and investors who hold a lot of the debt? dan: clearly the governor -- government once to avoid -- wants to avoid that these retailers were get hurt. a number of proposals was to swap into new shares, or bonds that would be guaranteed by the government. clearly, the last thing this government needs right now is to witha serious problem 40,000 customers at the bank.
michael: dan liefgreen, thank you for joining us. we will continue to check in. the monte dei paschi rescue could take place over the next couple of days. we will keep you up-to-date with the latest headlines as they come across. trading halted at the bank. we will bring you more on our exclusive conversation with bank of america ceo ryan moynahan on his to do list. ♪
michael: good morning, i am michael mckee in new york with francine lacqua in london. the bank of america chairman and ceo brian moynihan says most of the items on his to do list when he took over have now been completed. he spoke exclusively to david westin. brian: when i interviewed for the job in the latter part of 2009, i had a list, i literally had a list of all of the things that did not fit with the core franchise, consumer franchise, merchandising, and capital markets franchise. that came through a lot of the enterprises required. we needed to deal with overtime. i showed the board that, and the idea was if we took the risk out of those businesses, and took the capital and complexity out, you could tighten the company. we went from two points -- $2.7 trillion in assets down to about
$2.2 trillion. we went from credit card operations in five or six countries down to one country. all of it was based on a basic principle that our basic business model was, all of our businesses operate in the united states and two are global. large companies are global beings and we have to be there to serve them. i have that list done, it is done now. we are largely done with it, but it has taken a long time. when he flipped the other side -- when you flip the other side, it is illegal for us to buy depository institutions in the u.s.. if you have more than 10% deposit you are not allowed to buy. it makes my life easier so i never have to worry about that. to grow the u.s. business it has to be more organic, which is why
we are opening branches in cities to round out the markets that we were not in. we have built new branches in places like new york, philadelphia. it is all organic so more financial advisors, more u.s. trust private bankers, more commercial bankers, more people in branches serving customers, and a town of money in technology. we cannot buy anything, so think about a company that has been around in various parts for 200 plus years, and all of the acquisitions that have arrived at the scene and how easy my job is because i cannot do it. company andhuge that burden is not small, but it is an interesting place to be. it is illegal, it is an interesting answer. michael: we are back with chuck lieberman and sharon o'halloran.
,ince election day, chuck financials are up 18% on the hope that brian moynihan and his cohorts will get a tailwind from donald trump and deregulation. do you see congress and the president doing enough to justify that kind of boost? chuck: that is impossible to answer. certainly the incoming administration would want to do a lot, and there are parts of dodd-frank that are in my opinion, horrible. they would be better off being disposed of. what he can do remains to be seen. there is no doubt there will be a lot of opposition. elizabeth warren in particular is going to fight tooth and nail. it does not make sense, but that is her gig. it remains to be seen what will come through. francine: do you expect a light touch regulation? sharon: i believe there will be
a rollback on some of the provisions of dodd-frank. i think that right now there will probably almost try and get rid of many of their proprietary training, living wills, consumer protection agencies, all of that stuff that elizabeth warren fought very hard for. they will push those immediately. in addition, i think many of the rules that have not been passed will have a difficult time getting connected. francine: thank you so much. coming up later today on bloomberg daybreak america's, a conversation with robert shiller of yale university at 9:00 a.m. in new york, 2:00 p.m. in london. ♪
i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. michael: good morning, to a leaderless washington, d.c. donald trump, who thinks he is president already, is in florida. president obama is in hawaii.
i am michael mckee in new york, francine the claw in -- francine lacqua in london. theor: shinzo abe becomes the attackr to visit site of pearl harbor. he laid a wreath and will be joined by president obama today. benjamin netanyahu's critics are coming out in force. --y initially joined him in but now they blame him for .arming the country's standing in colombia, an investigation blames human errors on the crash that killed most of a soccer team. authorities say neither the airline nor bolivia should have allowed the plight to take off -- flight to take off without enough fuel.
we are learning more about the death of george michael. his partner found him in bed on christmas day, dead from suspected heart failure. ofa calling the death unexplained -- police are calling the death of unexplained but not suspicious. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. francine: it has been quite a year for losing cultural pop icons. time for our morning must-read. -- theyle written by write "the only thing certain about populist movements as they run their course and not always in a way that leaves their supporters satisfied. the cause and source of the remedy for populism lies in what greek political scientist yost of rockets calls a crisis of
representation." i urge all of our viewers to go pick up this piece. it is on our website, called at rage over the economy. how do you explain populism or what we have seen politically in 2016, and is there anything that the more moderate politicians can do now? interesting, what you see is the rise of populism means the rise of the local constituencies, and local spectacle -- special interest groups around salient issues. when those issues become important, they rise, it becomes a particular point of interest whether it be immigration. that has been salient in europe and the united states, those become issues
representatives have to take action on, and therefore that becomes a populist movement. that is the way which you should think about populism now, and the crisis of representation as to the extent that there is a direct link the between constituents' interests and their elected representatives. francine: what is the linkage, if you look at the market? the markets have largely ignored any kind of populist movement because nothing has changed whether you look at italy or the u.k. and brexit or donald trump. what will 2017 bring? is a lot of dissatisfaction about the economy and i think the politicians brought that on themselves. in the u.s., both sides argued the economy was doing very badly . economic growth has been moderate, and yet despite that moderate growth unemployment has declined pretty sharply. the politicians ignored that part of it and claimed that despite the decline in
unemployment, there are still too many people who are unemployed. it resonated and that is part of the objection and part of the vote for trump. in europe, brexit as previously mentioned by sharon. i think there's discontent with the way politicians have manifested the discomfort with the economy, and some of their policies. that is the concern on the political side. in terms of the economics, the economy rolls on anyway that we have seen ongoing, good growth in the united states and the prospect is for some pickup in economic growth which will pose some problems because the unemployment rate is already down and that risks higher inflation. the fed has gone out of its way to say it is going to raise rates very slowly and is not clear it can do so, especially if the economy performs as well as the markets seem to believe.
that will create a problem for the fed down the road. michael: one of the issues in the campaign is the average persons median income had not grown, had fallen until 2016. yet wall street people made tons and tons of money, and the income gap got wider and wider. confusing because donald trump ran against wall street and then appointed half of wall street to his cabinet. you think anything will change that dynamic? chuck: the income gap, the average tends to rise with the economy. the average of the highest income earners tends to rise faster so that gap should wide in overtime. i think that is one issue and i do not think we will fix it so easily. the other issue is productivity, it has been very weak and living standards have not improved as
much as they have in the past. people sense that and that is part of the dissatisfaction with the economy. there is nothing the government productivityrove aside from putting money into research and development and promote more technological change at a faster pace. we have no evidence the government has ever successfully done that, so i would like to see an effort but i do not know that it will succeed. michael: populist movements, and go and we did crucify the farmers, but then teddy roosevelt came to office and co-opted a lot of the populace demands into legislation. do you see that happening? sharon: the infrastructure you was the of today building of the highways and the hoover dam was exactly that. i am hearingm what from trump, it does not sound like his trust with the private
investment will look like that. are they going to be directed into those high return investments, it is not clear yet. the only thing i will say is what government can do and has done very well in improving productivity is increasing education and access to , andtion, and training upscaling the skills of the workforce. they have done so successfully. chuck: i would love to see more of that. such as trade adjustment assistance and those , haveof training programs actually succeeded. they have not been as active in doing that now but that too was part of the public works and ability to succeed. michael: one of the inherent contradictions of the populist movement, people want changes that would require government , we doand trump has said not want more government involvement in the economy.
do you see an activist administration coming that is going to sort of rewrite the rules of the game? they are rewriting the rules of the game, -- sharon: they are rewriting the rules of the game that not in a way that will increase distribution and the median income or productivity as suggested, because that all requires increasing the median voters' skill set. the biggest increase in productivity in the united states was the g.i. bill, which was also access to mortgages were dashed through the banks, and none of that is going to take place. i do not see this as a populist type of administration. it is very much a return to the reagan era with trickle-down effect, touch of which has been i would say debunked as a theory
of the potential of long-term growth and productivity. increased inl have very large deficits, which will take a long time to unwind. if those lead to high productivity, that is fine, but this is not clear those are going to be high growth, high productivity areas. that is the question. francine: this is the question i had -- how much is priced in question mark he saw donald trump being elected -- how much is priced in? we saw donald trump being elected and because the market has priced so much in, he can only do one thing, under deliver? chuck: in the stock market and bond market, my sense in the bond market is that interest rates have not moved to adequate levels. we have seen a strong decline in bond prices and rally in interest rates, but i do not
think they reflect what i would consider to be reasonable market conditions that i would expect in 2017. i expect the fed to be under a lot of pressure to raise rates as inflation becomes manifest, and the flipside is corporate profits you better, and that justifies the higher stock valuation. the combination of a stronger economy, higher profits, some reduction in tax rates will combine to justify higher stock prices, and especially relative to the bond market, interest rates are still low relative to current stock valuations. i see the stock market as attractive and bonds very unattractive. michael: coming up next on bloomberg "surveillance," we will speak with neil dutta and michael holland. 6:00 a.m. in new york, 11:00 a.m. in london. this is bloomberg. ♪
francine: live pictures in hong kong and london, both where the markets are closed. because ofl trading boxing day. it is actually the day after boxing day but because of christmas day being during the weekend, we have it on a tuesday . a beautiful but cold day in london. i am francine lacqua in london on boxing day, the day after boxing day. .ichael mckee in new york toshiba they have to do a write-down on nuclear operations of several billion dollars and earnings will be affected. they suffered their biggest
decline in years. stephen stapczynski joins us now in tokyo. .hank you for joining us i know it is a pretty late day. what led to this write-down? stephen: it is not late at all, we just finished the presser for the writedown announcement. it is all about their nuclear business. toshiba bought westinghouse in 2006, and westinghouse has been trying to get their reactors built in the united states and china. costs have overrun, they are years late. the constructor, the company building the units had so much cost overrun to deal with that, and to settle the issue they bought them. and bought a unit of cbi now it is looking like the cost overruns are catching up to them. theiba might have to foot bill for these nuclear
facilities being built in the united states. they are not sure how much the cost overruns and how much of an impairment cost toshiba will take, but it could be several billions of dollars. nhk, the national broadcaster in japan, is saying it could be as much as ¥500 billion, a little over $4 billion. francine: this is huge. we are talking about several billions of u.s. dollars. what does it mean for the balance sheet for toshiba? stephen: this is a lot of money and big money, and definitely not good for the balance sheets. right now if they were to take an impairment of $1 billion or $2 billion that would wipe out their entire profit for the current fiscal year. that is not good for investors. they can bear that, though. they have got cash on hand. if it were to rise to $4 billion, according to the analysts we have spoken with,
that could be such a severe write-down that it could hurt their equity in their own company, and could hurt investors and folks who had shares of toshiba. this will reverberate, and it could hurt them going forward too. it is definitely bad news. michael: you are just listening to the press conference with the president of toshiba. how are they going to handle this, do they have a plan? stephen: they were very short on details. they just kept saying they are still figuring out exactly how much the cost will be, but they assured the folks that everything would be ok, that they would be able to handle this sort of writedown even though they were not expecting it. one thing they did say is in the future, they might have to rethink their nuclear power strategy. they put westinghouse in the center of their business strategy and since they had an
enormous scandal last year and another write-down. it flips their strategy on its head. they did not give a clear message to the press or investors what they are going to be doing from here, but i would imagine, and the investors i have spoken with have said they are going to have to rethink goingnuclear strategy forward, especially in light of competition from other countries. china and russia are building reactors around the world that are cheaper and do not have cost overruns. michael: thank you, stephen stapczynski, from our tokyo bureau. 11.6%,of toshiba down down as much as 16% earlier. coming up on bloomberg radio, what will happen in 2017? this is bloomberg. ♪
panasonic will start making solar cells and modules next year in buffalo, new york. panasonic will invest a quarter of a billion dollars. they are already building a to makeion giga factory batteries for electric cars and energy storage products for homes and utilities. consumer prices in japan have fallen for the ninth month in a row. the primary gauge of inflation fell 4/10 of 1% in november, underscoring the challenge central banks have. rochard year for disney, one took in more than $96 billion over the christmas weekend. disney has already earned more than $7 billion in global ticket sales this year, the first time it has ever happened. michael: thank you, taylor. let's bring the focus back to the fed and central banks.
we are still with chuck lieberman and sharon o'halloran. chuck, any normal end of your conversation, we would be talking about the fed and what they are going to do front and center 2017. this year they take a backseat to donald trump. did they take a backseat as the year goes on now that we have priced in what they are going to do and we focus on the fed? chuck: we have been repricing the fed since the last fomc meeting and they surprised everyone suggesting there might be a third rate increase in 2017 instead of two. the markets have not quite christ for three. three.'s -- priced for i would say three are likely and even for maybe. rate, if itment continues to go down and
inflation pressures continue to build and trends are unfavorable , i would say there is a substantial risk of four. michael: you look at this chart, this is the bloomberg dollar index, and you see since election day it has shot up. basically we are at 14 year highs. we saw this coming you mentioned with ronald reagan, he saw this during the reagan administration where they had to have the plaza accord because manufacturing fell off the cliff. will we see this happen? sharon: this will have an impact with trade, combined with the isolationist policies that trump has been pushing for, clearly will have implications for manufacturing and gdp growth. this is going to have i think rebels throughout the economy. --ipples throughout the
economy. interest rates, there will be a counterbalance. i see in many ways the fed becoming very careful about the deficit, at looking at exactly the value of the dollar and trying to gauge how and when it moves. francine: chuck, you say the fed is data dependent. isn't dollar dependent? do you worry a stronger dollar will do a lot of the tightening? chuck: it seems like that is the process of how the fed works, by strengthening u.s. rates will strengthen the u.s. holiday -- dollar, and put headwinds. the possibility that trump implements policies that are more domestic growth, the wilshire 5000 which is mostly small companies, has done particularly well because they are most likely to benefit from
a more pro-u.s. origin production side, and keep also in mind the u.s. manufacturing sector continues to shrink. it is a smaller part of the economy so the headwind is working against the smaller part of the economy. i think we will see more strength in the dollar over the course of 2017. francine: if we are seeing dollar strength, can they hike three times? chuck: the question is whether or not the dollar strength is going to undermine the economy as much is your question suggests. i think the answer is no. we saw a sharp rise in the dollar a year ago. it was a little bit of a headwind but the economy continue to expand, unemployment continued to decline. i think we could see another substantial rise in the dollar even from here, and yet that would still be insufficient to offset completely what the fed needs to do to prevent inflation
from increasing well beyond its 2% objective. chuckl: we want to thank lieberman with advisors capital management and sharon o'halloran from columbia university, as we continue to watch the markets and see what effects donald trump and the fed have in 2017. we will speak with neil dutta and michael holland, get there 2017 economic and market outlooks as well. this is bloomberg. ♪
shares remain suspended. obama says he could have beaten trump in the election. trump says no way. and going nuclear -- to sheba warns that -- toshiba warns it may have to write down. good morning. this is "bloomberg surveillance." it is a great week to be working. it is a bank holiday in london, but overall it is a more quiet time to fully assess the pitfalls and the risks of 2017. michael: it is never a quiet time when donald trump is out there tweeting, fran. he said a lot of interesting things we will be talking about throughout the show. but we want to thank you for coming in on this bank holiday. you get a day off after boxing day, except you were nice enough to come in to work anyway. francine: you are absolutely
right. all markets here in the u.k. are closed today. onto the markets and financial things to let's get to the "bloomberg first word news" with taylor riggs. found one ofa has the flight recorders from the military plane that crashed into the black sea. all 92 people on board were killed. of victims include dozens members of the military chorus. president-elect donald trump is questioning the effects of -- in eight feet, he wrote that the u.n. has great potential but has become a club for people to have a good time. his remarks came days after the u.n. voted against israeli settlements in jerusalem in the middle east. turkish authorities say they will facilitate contact between the syrian government and the opposition in an attempt to year and the the civil war. turkey, russia, and iran had agreed --
in germany come a new poll finds that more than half of those believe that angela merkel will be able to overcome political challenges in the year ahead. she is running for a fourth term. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. francine? michael? michael: four days left to get your portfolio in shape for the end of the year. light trading, futures are down. we do not know how much of that is the trade and how much is the feeling about equities. yields a little bit higher. oil prices,on 53.19, continuing its advance. german two-year yields are near their low for the year. yen -- the chinese
highest since april of 2014, up 51% from the first 11 months of the year, suggesting quickening outflows of cash. i put in the russian ruble. putinmp loves -- these are -- this is the one stock market donald trump may like. i will explain that in a moment. francine: i like that. this is what i am looking at for oil. european shares overall head for the biggest monthly jump in more than a year. however, a lot of the financial markets -- all of them in the u.k. -- are closed. european shares, looking at the lower than the 30-day average. dollar strengthening against most of the major currencies. 117.29. can see,
and gold, 1143. toshiba says they can spend billions of dollars to rectify the nuclear unit. michael: donald trump tweeted over the weekend that the world --ally has hope again presuming he is referring to himself -- and he noted as evidence the stock market is up 10%. not really. indexesat all the major in the united states, i cannot see the little red riding, but ,t -- the little red writing but the rest of them are not up that high except for the russell 2000, up 14% since election day. the question is, is donald trump a small cap guy? oliver renick says maybe a small hands guy is a small cap guy and that is what he is referring to. chartne: i like that because as we look into 2017 and the fact that article 50 is
expected to be triggered, that would affect negotiations between the u.k. and the u.s. you havel cap -- difficult negotiations with the e.u. let me bring you to my bloomberg terminal. this is the baker hughes united states account and white. this is the price of crude and the price of blend. you can see the range. this is a trick. we have talked about opec and the fact that they will start cutting production come january. for the moment they have not, which is why you see oil rigs actually going up in terms of numbers. i wonder whether that reverses the trend. michael: let's go to michael holland of michael holland and company, the chairman and founder. dutta also toyed by neil -- we are also joined by neil dutta.
we begin the hour talking about markets around the world. you are on record as noting that the handoff from barack obama to donald trump is one of the strongest economies we have seen in presidential transitions. which of these things affects investors the most going into 2017 -- the new president, the strong economy, the fed, oil markets -- what do we want to watch for outside the general euphoria that has been in equities? l: i think the equity markets are pricing in a stronger growth environment. you mentioned the election and to equities,bent and i think you want that to come out in the economics data. clearly that has pushed bond yields higher as well. my concern is going into the first half of next year, you will see a situation where the unemployment rate is below 5%,
inflation is close to 3%. basis,getting favorable right? wage inflation is getting up to 3%, and if the bond market is primarily pricing in favorable policy coming out of washington, what is going to happen when we start to price in a stronger economy? and there is a reasonable case to be made that the bond market is not even pricing in the economic outlook just yet? this is all about trump. that is what we're hearing of -- that is what we are hearing from investors. it will be interesting to see whether the fed continues to chase the curve higher, as we saw in december. they willned to think continue to reinforce the yield curve by keeping rates low. michael: let's put the question you raised to michael holland.
is the market really ready for the effects of a much stronger economy and the inflation that comes with it? michael: you have the market reflecting the enthusiasm we just heard about since the election. also, decent earnings numbers, not great earnings numbers. some people are adjusting the numbers upward because of the trump effect. animal spirit is supposedly save -- is supposedly a part of this. to the point about the bond market, we had last summer the 1.39, noweasury at 2.5%. it has come up a lot. lapping 3% in the few months? possibly. 3% in the next few months? possibly. maybe some of the bad stuff is
priced in as well. francine: michael, you say the economy is getting better. it is already in -- donald trump is already inheriting a ---strong economy from obama eight pretty strong economy from obama. francine, it is nice to see you print monte dei paschi is still in the headlines. you talk about the people who feel left behind. if we can get that moving forward as well, because we talk about unemployment being so low. the fact is that a lot of the jobs we created are not particularly good paying jobs. therefore a lot of people do not feel as if they are a part of this robust economy we have been hearing about. i think if we can get a lot of that going -- and there is a possibility it may happen, the rising tide will list all the boats. francine: the rising tide that lifts the boats -- the problem
is that if you are focusing on manufacturing, is that really type of jobs that people want? neil: we know that manufacturing has been in a secular decline, as have coal mining jobs, for example. this has been going on for years. a lot of this has to do with technological innovation. you talk about coal, which has gotten a lot of attention. that has been displaced by other aregy resources, which clean. you have seen recently natural gas prices have gone up. not surprisingly, coal production has gone up. the only thing that we can do in terms of macroeconomic policy to address this -- first of all, it is working. let's not forget that median household income has been rising. it rose quite strongly in the last year. the only thing we can do from a
macroeconomic perspective to address this, instead of the targeted policy toward one industry over another -- i think it is just running the economy hot and trying to draw as many resources back off the sidelines as possible. the u.s. economy still has a lot of production capacity. as mike mentioned, we talk about job quality -- another way of saying that is that there is still slack beyond the 4.6% unemployment rate and what that tells you. i think the fed is doing that. this is the -- how does a rising tide lifts all boats? ripped for economy as long as possible before something bad happens. i think that is going to happen. for investors, now is the time to be revising down your expectations for a session risk over the next 18 to 24 months. that is my view.
and we are getting a situation where we are nearing full employment. the housing market is picking up. fiscal policy is starting from neutral to slightly accommodative. that is a favorable mix. 's only breaking in new york, but the sun is shining. michael holland, put on your sunscreen. both of them are staying withcoming up, we will see if jonathan goal of of rbc -- if rbc isn golub of wearing his shades as well. this is bloomberg. ♪
francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. taylor: profits of industrial firms rose 14% from a year ago. surging coal and metal prices are helping chinese investors to invest more. monte dei paschi needs $9.2 billion in capital. monte dei paschi says that is based on the results of a stress test. on friday, the italian government said it would put as much as $21 billion into monte dei paschi and other banks. it failed in its plan to raise 500 billion dollars from investors. that is your bloomberg business flash. michael: thank you very much. let's bring the focus back to donald trump. it never leaves donald trump these days. over the weekend, he tweeted -- the world is gloomy. hopee i won, there was no
and are joined by kevin cirilli, bloomberg news politics reporter in new york, neil dutta of renaissance macro research, and michael holland of holland and company. is not up 10% as we showed. but he was elected president. -- the market is up 10% as we showed. but he was elected president. donald trump cannot stop tweeting. can we expect this to continue? a lot of people are worried that he might say something that causes problems for the united states. kevin: the tweeting will continue, that i can guarantee. here's why. he uses a modern form of communication. way for him toa communicate in an unfiltered way. funny tweets aside, we have seen him deploy this action on more serious matters, such as in the taiwan,carrier, boeing,
and china. look for this to continue. it is definite part of this new administration's communication strategy. michael: he has tweeted about a lot of those issues. policy the old sort of unwritten rule that we only have one president at a time and that barack obama is still in charge, donald trump seems to want to have it the other way. what do his people say about him acting this way? kevin: of course president obama and president-elect trump are getting into somewhat of a back-and-forth over the holiday weekend about whether or not obama would have won a third term should he have been up against trump. are two there a competitive -- they are two very competitive guys. what this essentially speaks to is that there has been somewhat of a peaceful transition of power. -- at thebeen meetings and behind-the-scenes,
privately when they have met, they have discussed some of the transition issues. but clearly obama likes to play basketball. we know he has a competitive streak in him. we know donald trump likes to win as well. who knows who would have one? francine: i am obsessed with this latest tweet. donald trump -- "the world was ."oomy before i won christmas spending is up over a trillion dollars. does this unify people? does he have to get a broader base? itin: well, i think what does perhaps his highlights the differences between what we saw happen with brexit when there was a market reaction that was what isositive, and happening now. the difference between something like brexit as well as the trump election is that deregulatory policies of the incoming
administration has signaled to the market that perhaps new economic growth and more robust economic growth is possible. whether or not it will unify democrats and republicans, i am not sure that will. i tweeted the tweet and i also made the point that i think folks in the market as well as america are adjusting and realigning and getting used to the normalization of trump. longer and different. francine: kevin cirilli there. we are back with neil dutta, and we are back with our other guest, michael holland. michael, let me go with you first. we heard from kevin two presidents being very competitive. what needs to happen for you to feel a little bit better about the u.s. economy? the u.s. economy is not in a bad place. can the president-elect do more wille than good to it, or
he get away with an even stronger economy? michael: i think, francine, the next step here -- we have talked the talk, let's walk the walk, as the cliche goes. with respect to what the market is anticipating if we get some fulfillment of that, the early indications from the appointments would say that we are going to move forward, we are going to have action to follow the words. we have had a lot of words over the last eight years, some of which have not been followed by actions. if we get a surprise to the upside with actions following the talk and we get the deregulation that we have been hearing about, i think the markets will respond favorably. but it is a function of, will the people coming and have the audacity to come in and do all this stuff? michael: it will be interesting to see. with us.olland is coming up on "bloomberg daybreak: americas," a conversation with robert shiller
czynski. ofthis a write-down because something dodgy or because things did not work out with the economy? is not exactly something dodgy. it is because of a nuclear investment from back in 2006 not panning out. what toshiba did is they bought the constructor, the company building the reactors for westinghouse, and that is actually panning out very poorly for them this time around. francine: can toshiba counterbalance the loss he echoed can they do something -- can to sheba counterbalance the loss? can they do something that will mitigate the balance sheet? howhen: they are not sure much a write-down they will have to make. if it is large, they may have to go to the banks to ask for
finance to bring it forward -- to ask for financing to bring it forward. stephen, thank you so much for the insight. , bloombergpczynski energy reporter. tomorrow on "bloomberg thisillance," we focus on with marc chandler. 6:00 a.m. in new york, 11:00 a.m. in london. when you look at some of the fx moves today, dollar is actually strengthening against most of the major currencies. gold is reaching almost two-week high. this is bloomberg. ♪
visit the memorial to the american sailors and marines killed in the japanese attack on pearl harbor. he will be joined today by president obama. in israel, prime minister benjamin netanyahu's critics are coming out in force. opponents initially joined him in attacking the united nations security council for condemning israeli settlements, but now they blame him for harming the country's standing and its foreign-policy. in colombia, and investigation blames a series of human errors for the crash that killed the 92 people. they say the plane should have been allowed to take off with enough fuel to make a flight safely. -- senator john mccain says the arizona republican insists there is no word on whether there was in effect on the
election results by hacking. the secretary-general of the united nations will and his 10 year term in new york's times square. ki-moon will be there for the ball drop on new year's. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. michael: it is time for our "morning must listen." we turn to brian moynihan, talking with david westin about the company share price and his buyback plans. brian: we have finally gotten up to valuation now. we had a lot of firepower to put the stock in. in the lastval process to buyback a lot of stock. we think it is a great deal. michael: where back with neil
dutta of renaissance macro research and michael holland of holland and comedy, the chairman and founder there. brian moynihan is not alone. companies for the last several years have taken a lot of spare intoto put it back buybacks and dividends. is that trend continuing? can companies find other ways to boost share prices other than using their shareholders' money for their own benefit? michael: how about earnings, michael? what a good idea. michael: i have not heard that term in a long time. earnings -- i think we still have more than $1 trillion coming back. with the lower tax rate, the new regime is going to bring in, we will get more buyback. l, 2004, we had a repatriation. all that money did not get put into improving the economy, it
went it to shareholders' pockets. are we worried that we will see the same thing with repatriation efforts with donald and congress in 2017? neil: i think it is possible. there is no big multiplier in consumer spending. but that is not a reason not to do it. clearly the corporate tax code in the u.s. could use some refinement, to put it mildly. i think that could have some beneficial impact in terms of business and getting the animal spirit going. clearly some of that has already happened. but i agree with mike, i think that corporate earnings to some extent will be helped by stronger capital investment. the fact that profits are rising, that is a signal to companies to invest now. we know that about 20% to 25% of capex.ent is in
i think capital spending will have a strong year next year, and that will support the corporate earnings environment. francine: but that, again, goes back to the fact that if companies keep on piling and putting their money into share buybacks, that does not help to do good for the economy, actually helping this firm grow. ken donald trump force them -- can donald trump force them not to buy back shares but to invest in the economy? michael: that is a good question. michael mckee just referred to 2004. i believe there was a prohibition or a prescription ofinst buying back shares money that was repatriated. that is not effective because it is hard to trace the dollars. there was a net decline in jobs for some period of time because a lot of m&a occurred at the time which caused companies to lay off people.
i think your question is well asked. i am not sure that the repatriation by itself is going to increase the effectiveness of the job force, but i think on , what can stocks get moving from here? actually, earnings would be the beneficiary for it not so much jobs, as you point out. francine: njeeil, if we link all repatriated,being is there any way that president-elect trump can link it to job growth and drop creation in the united states? neil: i think that they can put in some sort of provisions where if they spend it on capital spending and investment or hiring -- i mean, i think there has been some chatter about that. -- ily, i do not think
understand why they do it politically. i do not think it is really necessary. to me, the corporate tax code is in need of reform. that basically means base broadening and lower rates. i think that helps boost potential growth. we saw that the last time they 86. a big tax reform in 19 obviously in 1986 we had a big corporate tax reform and we were in recession a few years later. it would be helpful. and i think the bigger story is, this is the sort of stuff that we should be doing. given where the economy is right now, going for sort of a big bang stimulus plan, is not really necessary. the low unemployment rate undercuts the idea of going big. so tweaking around the edges, that is what you should do. holland, 1986 --
go back even earlier to when ronald reagan came into office with a big tax cut plan. the multiples than were about, one, we had a very bad recession in 1982, 2 back-to-back recessions. how much of an impact on earnings can all of this have when we are at 22 now? michael: it can have an effect from here on earnings. point a second ago, you cited reagan and you also cited at the time when he did his jobs on taxes, he cited jfk. both of those guys did investment tax code. they did induce more capital spending in significant ways. it was very helpful to the economy. that series of events -- if we did that, it would be better
now. what do you think? neil: the reagan tax cuts, going back in history, you have different people now saying different things about it. inflation was at a much lower social cost. you had lower taxes, but there was a more painful recession. so there was an offset. what ultimately gets it going is what economists call an accelerator effect. people think growth is going to pick up, so they invest more now. michael: fran? francine: that definitely will happen if you look at the biggest risk to 2017, the fact that people -- we saw the euphoria since november 9. is there a risk that this does not follow through with anything concrete? neil: i think that is a risk. the bigger risk is that they actually try to do too much. if you have a big infrastructure plan -- president-elect trump
goes around talking about how terrible la guardia airport is. if you do a big infrastructure plan, that increases the risk to the economy because it draws resources away from sectors of the economy that need it right now. for example, housing -- could you imagine if the federal government comes in and does a huge infrastructure deal, pulling construction workers away from housing at a time when these jobs are going begging and housing demand is moving up and to the right? to me, that creates a big risk. it will push up wages in that sector very high, crush margins, and heard the housing market. you could be talking about crowding-out effects at that point, and that is the bigger risk. that is why i say it is better to go small band to go big. michael: let me pick up a column here. tend to focus a lot on what presidents do for the economy.
which he calls the fundamental fallacy of pop economics. he points out -- michael: i am wondering, neil, since you were pointing out how strong the economy is going into this administration, is donald trump going to ride on the coattails of barack obama, and whatever he does, the president four years from now might get credit? neil: there was always some of that. opinion leaders have sort of this temporary memory lapse. thate talks about the fact former president clinton inherited a 4% economy from george h w bush. the economy in 1992 was growing
not fast enough to save him in november. trump is going to inherit a strong economy. i do not think that presidents the economyble for moving, by and large. but there will be an effect. people associate it. how is the president handling the economy, as if he is writing the paychecks for all these jobs being created. -- it is a bita ludicrous. michael: bill clinton has been crowing for years about what a great job he did in the economy. .ou see what he was handed off the quarterback was george bush. the good news, he did not screw it up. simultaneity -- you get blamed for what is going on and you do not have a lot of
including some of the bank or let's get straight to the "bloomberg business flash" with taylor riggs. taylor: for the night month in a row, consumer prices in japan have fallen. the bank of japan's primary gauge of inflation fell .4% in november. is latest star wars movie adding to a record year for disney. took in $96 million in america over the long christmas weekend. it is the first time -- that is your "bloomberg business flash." francine: let's bring it back to the banks and the ecb monte dei paschi needing a billion euros of capital to bolster its balance sheet. our guest joins us from malan. -- from milan. what is the most important thing that we have heard in the last
couple of days, that we do not yet, or the ecb coming out and saying that 8.8 billion euros is what they need? >> i guess it is not a surprise that we do not have resolution or central closure, if you will, for lack of a better word, on this story because it will run for a wild. the statement that monte dei paschi put out with the ecb letters had a couple of surprises. calculated --ey the central bank calculated that monte dei paschi probably needs about 8.8 billion euros, which is much larger than the 5 billion which the bank was trying to raise on the market. the other aspect is the question out with ecb did come a bit of comfortable news for the bank, confirming that the bank is solvent, which would allow them to apply for the state aid. francine: this brings me to the
point that we also had ms. that thelone -- ongoing problems in the italian banking systems does not affect all banks but only a limited number of them. is that right? dan: that is correct. he also pointed out in the interview that the 20 billion euros that the government has probably sufficient because as soon as that number was announced last week, we had some analysts saying that they need much more of that -- they need much more than that. his pocket was that it should be enough because he is hoping that some of these other banks that need capital will be able to go and raise some of that from the market. michael: do we know how the italian government has been threading the political needle here? they not only had to satisfy the ecb because of the new regulations on bailing out banks, but they also have a lot of mom-and-pop owners of bank debt that might get wiped out? dan: that is true.
thousands of those people. the last thing that this --ernment wants to do particularly a government that is held by -- that is being run by the democratic party, mr. gentiloni, who defeated matteo renzi -- upsets retell investors at a time when they will probably be going back through elections next year. a couple of the proposals out there now are reimbursing with -- are reimbursing these bondholders with shares temporarily, a mandatory conversion. at the end of this whole process, giving them bonds again that again would be guaranteed by the government. dan, thank you. we will continue to check in with you as the week goes on. coming up tomorrow on "bloomberg surveillance," a conversation with bill lee, citigroup's head of north american economics. this is. in new york,
bloomberg forex report. it is a light day, a lot of people on vacation, so not a lot of trading comparatively. the japanese yen, perhaps one of .2, gets amoves, at little bit weaker on the day you see some asian reaction to that in thailand and in korea. death thee when chinese when, i put that in there because we are -- the chinese wen, that in there. suggests quickening outpost -- quickening outflows from china. alix steel, what are you excited about today? happy holidays. alix: happy holidays to you as well. brian moynihan, the ceo of bank of america -- you have been playing that all morning. we will be delving deeper into the conversation he had with david westin last week, talking about how he cleaned up the bank. to sell, what, if
anything, he wants to buy. we will speak with robert shiller after home prices come out at 9:00 a.m. i am curious as to what point the backup in yields hurts mortgage prices and affect home sales. mike, you mentioned it -- the volume trading in the u.n., prickly fascinating. we will be talking about that in the next three hours. michael: all right, alix steel. we will go to stephen to chatty -- from the money and banking blog, talking about china. for a large economies like china that is integrated into the global trading system, the global norm is a floating currency. absent a trade war and perhaps even with one, that is still probably where we are headed within a few years, and it is increasingly a question of when, not if. you take a look at what is happening with the chinese wen
onshore. a lot of cash is flowing offshore out of the country. we are back with michael holland of holland and company, neil dutta. should we be worried about capital flight from china? i asked this particularly in context of the calendar. we went into 2016 thinking things would be great. china blew up in january. michael: it blew up and they did it -- it blew up and they did a little bit of finagling with the currency. in retrospect, it was a blip. it did not really matter. china continue to do what it was going to do, moving forward with convertible currency. we have been talking about this because i have in traveling there for the last 20 years. it is happening right now. should we be worried? less so is the answer, because the chinese authorities are concerned about it, and they will continue to do things that
will keep it from becoming a major item. michael, should i worry about a trade war between the u.s. and china in 2017? michael: you and i spoke about this in london when i was with you a couple of weeks ago. the answer is, yes, we should. do i think donald trump will do something that will hurt the u.s. economy, which would also hurt japan and china -- probably not. but i think there will be a lot of saber rattling. i do not think we will get into a serious trade war. the appointment of mr. navarro makes me think that that is still a possibility, but i do not think a probability. michael: neil dutta, china, trump -- everything we have talked about in this program -- what is your biggest concern? what is your biggest happy outlook for 2017? what is going to influence us the most? neil: for u.s. investors -- to me, i think the thing to look for -- i will turn to
productivity. we talked earlier about regulation and deregulation. it is important to remember that regulation is sort of a pendulum. after the financial crisis, we between theing financial industry and other industries as well. now it appears to be moving the other way. it is important to remember that there could be some link between that and productivity. if productivity picks up, that would be the upside for equities. fromel: neil dutta renaissance macro, and michael holland from holland and complete. both of you are going to join francine and i on bloomberg radio as "bloomberg surveillance" continues. "bloomberg daybreak: americas" is up next on television. this is bloomberg. ♪
daybreak on tuesday, december 27. i'm alix steel alongside david weston. jonathan ferro is off today. dow jones and s&p futures flat. .1% almost higher by wiping out all of the losses for the year. u.k. markets are closed for the holiday. the story of a stronger dollar continues. around the highest level in over a decade. up and oiling higher. david: more cash for monti. monte dei paschi needs 18 , not the 5 billion bid failed to get from investors next week. no holiday for trump tweets. the president-elect taking to social media to say the u