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tv   Whatd You Miss  Bloomberg  December 30, 2016 3:30pm-5:01pm EST

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>> obama waited for the report from advisors and it was just obtained. i think he calculated as to what was the appropriate response. part of it has not been made public and he indicated that may not be the end of the actions against russia and architecture you that congress will want to weigh in as an independent branch on the issue. tillerson would separate his role as the ceo from exxon mobile -- mobil. and blocking a new republican backed law over control of election boards. the judge ruled that it justifies stopping the law from taking effect this weekend and he plans to review the law on thursday. the governor elect suit earlier to block the law that was passed two weeks ago. he takes office on sunday.
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and at least 10 workers debt and maybe more cap after a mine collapsed in india. rescue crews are searching for survivors and injured workers are being treated at a nearby hospital. the mine is owned by the government and at least to a private contractor. and coast guard officials say that they are in search and rescue mode as they look for planes that disappeared overnight shortly after takeoff from the cleveland airport on the lake erie shore. the columbus found plane departed from the lakefront airport thursday night and disappeared from radar two miles over the lake. so far, no sign of any debris or people aboard the plane. news, 24 hours a day, powered by 2600 journalists in over 120 countries. this is bloomberg. ♪
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betty: live from world headquarters in new york. >> i'm julie hyman. joe: i'm joe weisenthal. >> and we are minutes away from the end of the year. >> the final trading day of 2016. the s&p 500 and nasdaq ready for their best performance since 2014. energy, the biggest winner. and still the best year for them 2013. joe: "what'd you miss?" lower andcks -- going we would take a look at some of the best and worst performing assets this year. it has been a wild 24 hours for the ruble following the announcement of u.s. sanctions and the russian nonresponse, but
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now the currency is going to have it strongest year against the dollar. and the question that will not go away, can the euro and in a vicious experiment -- ambitious experiment survived? the region is facing more political headwind in 2017. julie: taking a look at where the major averages stand as we go toward the close, not just for the trading session, but for the year. abigail doolittle is standing by. abigail: we are going into the final 30 minutes of trading for 2016, the dow, nasdaq and s&p 500 are lower in a noticeable degree, but also the nasdaq was down 1% earlier. what stands out, this is the third day of declines in a row. and we are looking at weekly declines, this will be the first weekly decline for the dow since the election. a little bit of a bearish ending
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for the year, but what a great year it has been. here is a year chart, watching the dow, nasdaq and s&p 500 up nicely. and the dow on face for its best year -- pace for its best year since 2013. and caterpillar, united health, really helping. and the biotech bear market weighing on the nasdaq and s&p 500. and for the 10 year yield, quite a year for treasuries. it has been a roller coaster ride and we see it in this chart. overall, the 10-year gilts has gained over all -- yield and gained over all on the year. bonds sold off. and as you can see, most of it in the final quarter, gaining about 85 basis points this quarter, the biggest quarterly move ever after the election and there is optimism around growth. and as of the fed did raise
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rates. the question is, will this new up continue? we take a look at the bloomberg, this chart is great. we have shown it a couple of times. what we have, in white is the five-year, five-year inflation swap. and in blue, the 10 year yield, this is coming from an intelligence strategist who says historically the swap is leading. the chart tells us that inflation expectations have gotten ahead of themselves in the past and it could be happening right now, too. they goes to the five-year, five-year swap and then shooting down and then both dropback down. and this is similar to the past that led to the decline. we could see a reversal in the first half of 2017 of the big end of the year move up for the yields. julie: we are about to talk to that strategist, in fact.
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joe: we are going to wrap up the best and worst performers of 2016. i will bring in michael regan and our fx analysts, vince cinderella. vince, and of the year, what is the number one thing you are looking forward to in 2017? >> i think it will be all about politics, politics ruled the day in 2016 with brexit leading the way and i think it will rule the roost going into 2017. joe: a lot of interest across all classes with politics. the funny thing to me is how, even if you knew the outcome of the votes, like the election and brexit, you probably got everything wrong because he probably sold off in body a lot at wouldprojected -- th be worthless. what you have your eye on? >> the death of conventional
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wisdom from what to expect from the referendum in great britain and also the reaction with the election, amazing how quickly things were bought. the traders are accelerating that by the process. as it is you get used to that sort of rhythm, it makes you wonder if it is the end of it. i definitely think we will be watching twitter possibly more than we are watching the echo page to see what the new president is up to you. oliver: we had big events. in the first two months, things were terrible. we had brexit, selloff going into the u.s. election, but if you look at the vix, the average was lower than last year. i way that different than what we are used to? >> i wonder if the vix is using -- losing power as a signal. there are some in different ways to hedge now. one of the crazy news i was looking at was the etf and the
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direction of the junior gold miners, bear three times index. basically it is triple short for the gold miners. it jumped 97%. and that was great. opped 97%ob 97% -- dr but the market cap doubled. julie: i think we have a chart of a. >> people were pouring money into it. and there are some examples of that of the crazy exchange products that give people a chance to hedge. joe: i have a chart on the bloomberg. the direction of the 3x gold miners, starting at less land three dollars a share, wins over $30 by the middle of december, now around $5.5. >> that is the long.
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we are looking at dueling terminals. oliver: how does the market cap go up when the shares are flat? >> they are creating new shares and there is more interest in it. on thetill down 97% year. i do not know how smart the money is. there could be a lot of gamblers out there. but there are many products like this and a lot of ways to focus hedging right now and it makes me wonder if the vix is the only benchmark to look at for how people are hedging. julie: i need to bring in the ruble, because of the news we are talking about most recently, this is been one of the big winners this year. and speaking of that, we are tracking the russian stocks in the u.s., showing they are up is a lot this year as well. what happens now with the ruble? >> it is an interesting story, it has gained with commodities, but from november on we had
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strong industrial production, rates have come down and inflation has come down and you have a bromance with donald trump and vladimir putin going on and if they passed things -- patch things up, the year has potential upside. joe: is it hard to break out how much is commodities and politics when you look at this move? this applies beyond russia, because when you look at 10 year rates, how much is expected stimulus? how much is dollar tightening and expectation trade? how do you think about decomposing factors? >> it is a difficult question because most traders look at the excuse of the day, what caused this asset to move and you get stories behind it. and a lot of those stories do not match up, it is the convenient story at the moment. julie: when you're looking at these out of the blue factors, whether it is the effect on currencies or other assets, what
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do you hear from investors in terms of the argument to be made for this buying, passive investing, etc.? >> i do not think it will go away soon. we keep hearing people say that there will be the return of the stock -- and people have said it for a long time and it is wishful thinking that management will make a comeback. conditions are there for the potential of it with the return to value stocks and cyclical stocks and away from the bond proxies and dispersion. we will see. we will see how the returns come in. [coughing] joe: thank you very much. cannot wait to talk to you both again in the new year. julie: donald trump, we have been a leading to it, he tweeted
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praise for vladimir putin after the russian president said he would not expel and there can diplomat in light of the new sanctions. this is bloomberg. ♪
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♪ joe: "what'd you miss?" donald trump is praising the russian president in a tweet saying, "great move on delay (by v. putin) - i always knew he was very smart!" this is a reaction to the news that moscow will not retaliate on the sanctions against russia. we will talk about what is next for their relations with the
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deputy director of the kenyan institute for advanced russian studies of the woodrow wilson center, joining us from virginia. thank you for joining us. so russia is not doing any immediate retribution to the exploration of 35 people by obama yesterday, so is this simply, wait it out, no reason to do anything until the new administration comes in? >> i think that was behind his decision. he must wait only three weeks and instead of having a president accusing him of espionage, he has a president who is happy to work with him and considers him a smart guy. why wouldn't he wait three weeks? julie: on this point, he appears to have a congress not terribly unwilling to work with him. how much of an issue, a problem will that be for donald trump? >> i think it will be a major
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issue. clearly, there are prominent voices in the senate and house that have said that barack obama is a reaction was not strong enough, so there will be an interesting development of a president that wants to have better relations with russia, having to deal with a congress and his own party that probably want more sanctions. i do not think anybody can anticipate this particular battle because it will take place in the context of other major issues. we need to see where the republicans are willing to work with donald trump is whether they want to hold a hard line. oliver: when you think about this situation that has arisen, it does feel late in the game. but what are the next steps? when we spoke to the senator earlier you said they were pushing forward on the sanctions, can they do that? will we be able to see more of this when donald trump is in the white house?
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>> i believe there will be a strong reaction to president donald trump if he decides to remove the sanctions and the congress has within its power to legislate those sanctions and make them law. by now they are executive orders and can be removed at the president's discussion. there is a possibility that if congress does not like what donald trump does and how he decides to remove the sanctions, all of them or some of them, one can expect the congress to respond and russia is one of the issues that unites republicans and democrats, so one would think there is a strong majority and a vetoproof majority that could produce their own sections. is not releasing is the militaristic power that it once was, economically it has diminished and it is not very big on the global stage, but on the modern, hypermodern era of
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information, it seems to be a at ofng -- adept at using tools moderation. they say they are very good at putting out information in channels like rt, sputnik and so forth. how the western countries deal with their novel use of some of those, the propaganda and disseminating information? -- one, they have found ways to counter them as opposed to imitating the. the crucial thing about russia is it creates its own set of facts and present them any convincing way, not just convincing russian audiences but others around the world. so the u.s. and allies must find a way to counter that, but they have to do so when their own political systems have populist populistcies --
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tendencies and may not be willing to listen to the argument. so it is unknown territory. and i think they must figure out a way to respond adequately in order to be able to once again control the flow of information. that is a difficult thing to do in a fragmented media state. julie: it does not seem as though the latest sanctions are going to achieve that. in terms of stopping any future hacks, for example. what would you suggest? how should the u.s. and other countries be dealing with these new crimes and direct -- threats / ? >> the russian response activity has shown, the u.s. must have higher cyber security standards and be on the look out for these kinds of attacks and implement standards that will depend the u.s. on these. when the island about the --
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when the fbi learned about the attacks, one would assume that these agencies take a more aggressive response, and articulate the response to the russian federation. again, it requires greater security and also the ability to respond. president obama has promised to respond, but the issue is the genuine response has to be secretive and not open. joe: great stuff. thank you, the deputy director of the kenyan institute for advanced russian studies at the woodrow wilson center. oliver: and that is 20 minutes away from my hometown. -- oft, 2016 of ended ended many consensus forecast. we will take a look at 2017 with a lot of asset classes. this is bloomberg.
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julie: "what'd you miss?" 2017 forecast, looking at asset classes. i'm looking at currencies, which is expected to be muted next year, especially looking at the fourth quarter of 2017. so i looked at the consensus forecast for next year and this is what you get. this is the year to date of the performance for the yen, pound and euro. yen is at 3% versus the dollar. and the pound is down 16% versus the u.s. dollar. for all of these, the yen forecast, looking at 1.1 five. and the euro, 1.17. a little bit of a recovery for some of these. and the movement in each of
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these is around 1.5% from the current levels, so not a huge forecasters are predicting, although when you look at the order by quarter forecast, there could be more bouncing around. interesting, it is like for stocks, not a lot. joe: looking at the current market and then trying to base of their forecast on that. in fact, the chart i will show makes a similar point, but i am looking at expectations for the 10 year yields. this is kind of the most important question, what are the interest rates going to do? if you get that right, you will probably be in good shape. the average expectation is expected to close around 2.68% at the end of q4, 2017. look at the trajectory, because it was below 2.2% in the middle of october, then it went up after the election and it has
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been zooming up since. i think we know why the forecast has been increased. they jumped sharply during that time and everybody scrambled to add just -- adjust. that is where wall street sees the 10 year yield, the market based measures of where the rates are going are around the same place. around the 2.7 mark, a little bit higher, and consensus is usually for the higher yield, and 2017 is no exception. oliver: you know who else won't -- bumped them up, we have currencies, bonds, and i will talk about stocks. we will start with what is going on in 2017. you are looking at what is happening for the estimates, about 2356, up 4% in the market right now based on the strategists we surveyed. they were not so bad this year.
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taking a look at where we are right now, talking about 20 to 36, this is -- 2236, this is the blue line. looking flat. we are pretty much on point. but we talked about this a lot, and they are always bullish. this year in particular, they are bullish and will average around 10%, meaning the s&p 500 should go up 10%. on point. right did they call anything along the way? not necessarily. that estimate was pretty close. julie: we look at averages and there was a broad dispersion of the estimates going into this year. next year, 200 points, that is the range and that is all. oliver: he will have a lot of people having to revise estimates. joe: i expect revision every year. julie: the market close is up next. taking a look at the major averages.
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looking at the day and on the year. this is bloomberg. ♪
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♪ julie: we are moments away from
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the closing bell. "what'd you miss?" low closing out the year, but still the best year for the industrial average. and the s&p 500 is down for its third day, but it's best year since 2014. joe: welcome to the viewer is who are trading in on twitter, you can watch us everyday. julie: we begin with our market minutes on this last day of the year. not a lot of superlatives for we have some for the year. oliver: did not hit 20,000. i hope he did not make any bets. it ended up being an interesting last day for stocks, deep in the red thanks to a couple of sectors. 20%, down aabout full percent.
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and it ended pretty bloody today. you pretty much had every sector except financials doing poorly on the day, those were around 25 higher. and we have the trend even when the financials do well, you have utilities doing pretty well as well, you do not have the rate dispersion you typically see. and looking at a couple of stops, interesting movers today. we've been talking about nvidia, it has gone back and forth over all. down since the short call. it was temporary. julie: 224% on the year. oliver: they were calling for 90, but not zero like they usually do. and they move up for endo health. conagra down as well. finally i want to jump over to the vix and volatility.
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up on the week, six straight sessions climbing, despite the stocks fluctuating back and forth. we are high since november. nothing to write home about. julie: maybe we need to -- oliver: you have to balance out. think it's complicated. joe: we will take a look at the government bond market, starting 10 year,two-year and but lower on the day. it is interesting that the 10 year yield is that to where it was at the december 14 said meeting. it -- fed meeting. it shot up. and now it has the wrist all of that. and we will take a look at the 10 year on the when you're basis, giving us a sense of what a year has been. pretty extraordinary, we got 8 waso 1.36 in july, july
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sincew and then rising then. it shot up after the election, perhaps on expectations of fiscal stimulus. that puts it in context for the year. now take a look at the 10 years of the 10 year yield, way off of where we were precrisis. we have a long way to go, but we are climbing back to where we were in 2014. i think the tenure long-term rate, the key question right now, and we have some charts on that. oliver: pretty solid. joe: security. julie: are we thinking security through the year? pressure is on. taking a look at the currencies. looking at what they did today, the dollar rising against the yen, but it is really the movement in the euro overnight causing fireworks. take a look. we got a two day intraday charts of the euro and what we saw
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overnight was a spike in the euro. theyf you talk to traders, say there was unexplained algorithm computer trading, they say that when they do not know what is going on. but this characterized the year as well, strange spikes in currencies. joe: i think something happened in japan and the pound from a couple of months ago, the movement at all hours. and they are blaming the robot. julie: and a quick look at returns for major currencies, lcrs on the bloomberg, the rea the big mover. and the ran that would have been difficultd, to predict, and the big loser, the peso closely followed by the british pound and the swedish krona. joe: ok, looking at commodities.
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oil and gold, neither one moving very much at all today, basically flat. and any perspective on the year for -- by looking at a one-year chart of gold. maybe not. here we go, the one-year chart 26 earlier this year. that is extraordinary. the bond market was pretty volatile and so wild with oil that it would into multiple their markets and it looks like the world was falling apart, but then coming back. year --, another peaking in july, the same time as treasuries, so the trade of buying safe haven as -- and much like treasuries, selling off dramatically after the election and a bounce back in the last
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couple of days. julie: those are today's and 2016's market minutes. joe: donald trump weighing in on the markets. and 2017 is expected to be dominated as well by politics. the next guest will talk about these episodes and how they present opportunities to investors. joining us is a fund manager, eric, what are the big things to watch in 2017? we say this year was dominated by key episodes, brexit, donald trump, people hyping of the italy vote, and that turned out to be nothing. nonetheless, the fed decision and others, so to you, what are the big things you are watching? lessons iof the think, something that reoccurs in the markets that this year is a fantastic example of it, the
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asset prices having a will of their own. where we tend to focus on the forecasts and fundamental events. the events themselves have been surprising and the response to those has been even more surprising in many ways. that is where we try to focus our attention. the irony is, if you have a crystal ball this year, it is not all obvious you would have made money, because the expectation of what would have happened to prices in response to donald trump or brexit, where the belief around the implications of brexit were quite traumatic, and the response of the election, very different. so one thing we are looking for is when those asset prices get to extreme points. julie: in that case, and we spoke with an investor yesterday you said, the you ignore the geopolitical stuff and focus on notings and try factor,
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even factor in the other elements. eric: it is not so much you ignore them, they are relevant. they are likely to be fundamental consequences of the events, but what i am saying is you must become the saints and recognize that cognizant and thegnize that despite science of risk management and fundamentals, that the prices andct collector's behavior psychology and that is important. to enable, a lot of what we spoke of over the summer was how it feels to own government bonds. the point is, if you go to post-brexit when we just saw on that chart of the 10 year yields, those globally, the government bond yields go to extreme lows after brexit and the perception was that these were incredibly safe assets and when you saw them selling off and people making big capital
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losses and volatility rising, the perception of risk and what it feels like to own the assets starts to change and it can result in amplified effects. isver: credit where credit due, the episode hedge fund was keeping up with the s&p 500 this year. can you talk to us about what your expectations are for managing a multi-asset portfolio next year? because this year was difficult, some of the returns while sizable were limited to specifics. eric: to be honest, most of where it was fruitful for us was after these episodes. you get rapid price moves and markets become obsessed with a single story and often there is a strong propensity for things to diverse, so going back to january when you had all this scares of the recession and
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things like financial equities in japan after the bank moved to negative interest rates, those were opportunities that reversed aggressively. i think the question for the next 12-18 months is the moves we have seen over the past six months in asset prices, the big reversals, the big news in some of the currencies, are premised on certain things happening. so i would describe the u.s. economy has been in a state of secular stability since the financial crisis and you have a very stable rate of 2% real gdp growth, consistent payroll growth, relatively stable declined in unemployment and now the question is, will the change in policy associated with donald trump really result in the economy shifting gear? i think that is going to be, and it is difficult to call that, but it is going to be -- have a
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big impact on asset pricing. julie: do you think one of the lessons from 2016 is that you have to be more reactive, more quickly reactive than proactive when it comes to trading, whether it is a political event or some of these potential boom and bust cycles to come? eric: i think that is right. what is important when you think about investing is having a plan to what you would do it asset prices moved to extreme levels or you see certain things occurring. something i think that is an interesting opportunity would be something that the mexican peso. it is important to emphasize things that have moved in a way that are inconsistent with other asset prices where you are getting good odds and the probability of the distribution of returns is favorable. it is intriguing when you look at the peso, most of the assets
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that reacted negatively to the association of donald trump have reversed those initial news, but then you see the pace of where you have the legacy of the volatility remaining in the price, that is intriguing. the way i would be positioned currently is you want to have balanced diverse a vacation, but you also want to make sure you have significant room for maneuvering, because as we saw this year there will be surprises in the next 12-18 months and opportunities you may want to take advantage of. joe: ok, eric, you will be sticking with us. the more ideas for 2017. this is bloomberg. ♪
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♪ i'm taylor riggs. let's get to the first word news. butld trump praising americans his decision not to retaliate against the expulsion of 35 russian diplomat. he tweeted, great move, i always knew he was very smart. earlier today, putin said he would not be expelling anyone after 35 diplomats were announced they would be forced to leave. and they would be taken out in retaliation of interference in the presidential election. and reporting the first death in syria after the cease-fire began. a group for human rights said that a man was killed in the suburbs, but no word of major violations in the cease-fire brokered between russia and
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turkey. and a federal judge has denied a request to delay a hearing for dylan roof. he is the man facing a possible death sentence for the killing of nine african americans and a charleston, south carolina church. and the judge ordered a psychiatric evaluation of roof to take place this weekend. in response, attorneys are asking for a delay, said testing -- for the week and the judge said no. and a high risk for wildfires in the southern plains and florida after we see dry air and now red flag warnings from much of oklahoma, kansas, missouri and northern texas. a warning is also in effect for west and the southwestern florida, which has had very little rainfall in the past month. hours a day,24 powered by more than 2600 journalists in 120 countries.
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i'm taylor riggs. this is bloomberg. oliver: we are back. beforehere on the friday new year's eve. eric, we have been talking about the conviction trade for 2017. i want to ask you about how you manage your portfolio going into the next year, because we were talking about the complexity of the vix and options pricing. i know you have a lot in your portfolio, but what you think about hedging and the tools you use in the type of environment for next year? eric: we try not to hedge for the sake of hedging, so ideally we want all positions to make sense and have them on a standalone basis. we have given material weight to how much diversification we can get across the asset classes. i would view volatility using
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options in a similar way. in other words coming to try to do them when they are attractively priced. i think volatility is now at interesting levels in the case of the u.s. looking at the absolute level of volatility, that is relatively low and realize volatility and of the vix is low. there is not that steep of a curve, so volatility can have a place in the portfolio. joe: i want to talk about the idea of identifying assets that are at extremes, because it is a tough thing, thinking about 10 year yields and long-term yields, people have been saying as long as i remember, over a decade, that yields cannot go any lower. they said that in 2006. they cannot go lower. some perceptions of what is extreme is difficult to know at any given moment and i assume
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that applies across all markets. what are some tools for ideas used to identify when something is at an extreme? eric: that is a great question. what i would say in the respect of 10 year treasuries, i think there is analytical error in those claims. one thing that is important when you are thinking about government bond markets, the short answer is looking at asset class by asset class. you have to remember that 10 year treasuries is expectations for a class -- cash yield. so just looking at what our prevailing average cash rate is, it is surprising to people even now, so if you think to yourself, 10 year yields look low, but the real question you have to ask, is it likely that the fed rate will average more than 2.5% in the next 10 years? and the beliefs are
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inconsistent, so people think it is low, but not that cash rate will go higher than the tenure -- ten year. it is interesting to look at the 10 year historic funds ray and it has been sub 1%, so we have been in a regime of negative real cash rates. when i look at a 10 year yield now, 2.5%, that is positive real return, that is not a silly valuation. but if i look at currencies, look at something like sterling, i would say sterling against the dollar is at an extreme. if you can look, look at the 30 year chart and i think it gives a pretty clear message. you can look at it as a real exchange rate, which is not unreasonable and ask yourself fundamental questions as to whether you think that the performance of those two economies in a structural way has changed dramatically.
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julie: you mentioned the mexican peso as being at an extreme, and he mentioned the pound, both of those undervalued on a historic basis. is there anything else at the end of the extreme in terms of where you are looking for 2017? anything that has on too far in the other direction? eric: good question. that is tricky because i think a lot of things didn't look overvalued around the mill the year and now it has reversed. i think people are concerned about is the level of the s&p 500. last time, that was a trickier to make my because in an absolute sense the u.s. equities have done well and i would say that there is a reasonable degree of optimism priced into the u.s. equities. i think the valuations are above average, but the honest answer
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is, the average valuations do not have that high of a degree of meaning. i think it is probably the relative opportunity, so i think global equities and certain parts of the market are looking a lot more attractive than the aggregate equity index. there are staples of those rate sensitive components, they are priced to deliver poor returns. oliver: is that your best trade or do you have a top one for 2017? eric: european equities and a sterling against the dollar. oliver: enjoy your new year. julie: coming up, where are volatility expectations the highest as we go into 2017. that is the subject of my chart, coming up. this is bloomberg.
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♪ julie: i'm julie hyman. "what'd you miss?" i'm looking at volatility not just with stocks, but we have been talking about the vix and other assets. we've been talking about divergences and this stands out when you are looking at volatility expectations. jpmorgan and currencies and bank of america, said going into 2017, investors appear to be looking at an uptick for the treasuries and gold, and at the same time looking at a drop for emerging markets equities and high-yield, so it is an interesting proxy for what might
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underperform and outperform for the coming year. also, what triggers they are looking for in terms of the wild ride they will have for the asset classes. joe: it is a striking divergence. inflation inat spain. just kidding, people are probably not paying attention to, but it is interesting because the era of deflation may be coming to an end. spanish cpi is up 1.4%. and is really a wild -- now it is not feel like long ago when everybody was saying, when were they'll be inflation? i think that was just a couple of months ago. now around the globe, price pressure starting to firm. oliver: it is hard to find inflation, so when you find a place that has it, you need to
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make a big deal of it. a chart is looking at function that many people do not know about. this is a way to look at volume really on any security. i am looking at the spy, to give you an idea of what is going on. this is volume during the day. and it is broken into three days. today, it was ticking above the orange line, meaning that it was above average for the 30 day. look at yesterday and the day before, volumes have been low. i love this chart because you can go in at any time of day and you can figure out what was trading and how good they were compared to any time, which you can change, we are at 30 day that you can use the 10 day. i love it. joe: a lot to digest in that one. up next, we will prognosticate about what lies ahead for the global markets in 2017.
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particularly the future of europe. this is bloomberg. ♪
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>> first word news this afternoon. vladimir put sinn condemning a new round of u.s. sanctions against russia but says moscow will not retaliate by expelling u.s. diplomats. and ariel cohen on bloomberg tv today, he spoke about president-elect trump's view of the situation. ariel: what i think trump is trying to do is negotiate new understandings for putin. he after all wrote "the art of the deal" and the question mr. trump should be asking is, if we lift sanctions, for example, what will we get back? >> president obama's move puts trump in a position of having to decide whether to roll back
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the sanctions once he takes office. and the u.s. has released its most detailed report yet backing accusations that russian supported hackers interfered in the presidential election. it's the first time the u.s. has officially and specifically tied intrusions into the d.n.c. to hackers with the russian civilian and military intelligence services. the 13-page report says russia was involved in an ongoing campaign of cyber-enabled operations directed at the u.s. and its citizens. and turkey's foreign minister is urging washington and moscow to put their differences aside and join in negotiations for a preys process in -- for a peace process in syria. he says neared should should expel diplomats. a cease-fire is currently in affect in syria. democrats are preparing a case against donald trump's nominee
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for treasury secretary steve mnuchin. they say he preyed on the middle class to help trump win the race for the white house. that's according to a report in "the washington post." democrats will focus on mnuchin's purchase of a failed subprime lender which has repeatedly been accused of wrongful foreclosures. global news 24 hours a day powered by more than 2,600 journalists and analysts in more than 120 countries. riggs. or this is bloomberg. julie: this continuing of the reversal, as people perhaps do a little bit of tax-associated selling here to close out the year, the nasdaq doing the worst of the three major averages, down about .9%. incidentally the nasdaq was the worst of the three major averages on the year. up 7.5% to the s&p's 9.5% and the dow's 13% gains respectively.
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jope "what'd you miss?" -- geo political uncertainty risks in the new year but are people being overly fearful? i want to bring in duncan, head of research at the resolution group. duncan, you have been following political economy across europe for a while now. greece, the u.k., obviously, is it just going to keep getting more and more chaotic or is there any prospect of stabilization? uncan: well, 2016 has been -- we had brexit. we had donald trump winning which took the markets by surprise. but i do wonder now if maybe people shocked by the events in 2016 are starting to overestimate what are tale risks. the big political event in europe, the one that could shakes things up, the french presidential election in may. and a victory for le pen would
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be the beginning of the end of the european union and the beginning of the end of the euro. we should take solace in the act that we show le pen losing 65%-35%. i'm tempted to say maybe we are past peak populism and i am aware the moment i say that i could find myself on an end of 2017 show. joe: that would be embarrassing. julie: duncan, didn't 2016 show us that populism, at least in the eyes of the markets, is not as dire as perhaps the predictions made it out to be? indeed, the two big populist events that we had in one of the cases, the markets took a matter of, what, hours to snap back and the other it took days in the case of brexit. so even if something like that happened in france, is there a certainty, then, that you would
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see markets tumble? duncan: well, there is nothing certain in these things. with brexit, we had the vote. also the process of actually leaving the european union is beginning. it won't officially begin until the end of march. the u.k. economy over the last six, seven months has shown a lot more resilience than many people, hands up myself included, expected a lot of forward momentum in that economy. we are not seeing much of a direct brexit impact on u.k. economic figures. on the market side, obviously a very good year. up 14%. trump, i mean, that was one of the fastest reversals i have seen in any market. the narrative just changed completely from america's elected populist to maybe this will be looser, good for growth. that took, as you say, maybe five, six hours for that reversal. joe: duncan, let me augment
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julie's point. a chart in 10-year guilt. of course it spiked after brexit but ultimately since september, they continued to move lower. oliver: we've seen what happened with the popular victory and how markets responded. brexit as well. what now i guess is the flashpoint in europe that could potentially be something that not only is a geopolitical shakeup but a market shakeup too? duncan: ok. i think the thing to watch this year, a lot of potential on the french elections where i think the evidence suggests that although le pen will make the second round she will not win. we have the dutch elections where the freedom party, the populous far right may way top the poll. under the dutch system probably won't form a government. and germany, merkel will win. the one to watch, we could get a nasty upset is italy where we may get an election in 2017.
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italy is a very particular case where you don't just have one bunch of anti-euro types. you have the five star movement but also much of the retaliatory party is against the euro, so there are two potential sources of italian government which could find yourself in a standoff with europe. we do -- we should think back to greece. it's worth saying, here's we're looking at existental threats to the euro. deja vu. every day looks at different threats to the euro. one thing -- joe: i want to ask you about greece but i want to take a slightly different angle on it. one of the things thinking back to greece, obviously the government pretty far left, radical. but then when they came to power, they had to deal with the institutional constraints and the facts they were that they just didn't have the flexibility, really, to do what they wanted to do while staying in the euro zone. now, other countries aren't quite in the same position. they don't have the situation where they're such at the mercy
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of borrowers. that being said, there's still bigger institutional constraints. it's not quite as easy to turn around the direction of a country as maybe people would like to imagine. when you think about how these new leaders like the u.k. post-brexit, donald trump and so forth, are they going to be bound by -- is it going to be -- are they going to be more bound by various constraints in the international and domestic order than perhaps their supporters realized? duncan: oh, i mean absolutely. this is what happens in new governments. that's particularly for euro zone members. you have given up a lot of macroeconomic flexibility and other types of flexibility too. you certainly saw that in greece where you had the very angry five, six-month standoff where they agreed to another series of measures. and 18 months on, the economy has done a great shape in greece but the immediate idea of a grexis tmbings is a word
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we don't use very well because you get bound in by the constraints. the thing about the euro zone, the euro has been there for 15, 16 years now. it has been economically disastrous for much of europe. it's an incomplete military union on what's not an optimal area. although it's been economically disaster, it has also been incredibly resilient. there are so many times in 2011, 20 is 12, 2015, -- 2012, 2015, now in 2016 there have been political threats. each time they've been managed. when push comes to shove the euro zone's political leaders have done just enough to keep the zone together. the thing about the euro is we tend to analyze it because it's a currency, an economic phenomena. it's as much political as anything else. this was about european unity, about the unity of the continent. in the end, you know, the political leadership of europe have always done just enough to keep it together because there's a hell of a lot of political capital tied up in holding that currency union as
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it actually is. julie: of course, one way they have not kept it together is that the u.k. is indeed leaving. what do you expect this year on that front as article 50 is triggered, as the exit is negotiated? what are you expecting there and what affect do you think it will have on markets? duncan: well, i think 2017 in terms of what we know about brexit we are not going to know a great deal more. we will get article 50 triggered at the end of the first quarter of this year and there will probably be a five or six-month delay before the actual talks get started. beyond the french elections, beyond the german elections. it was the end of 2017 where detailed talks gets under way. the thing about trade agreements, and this is the best analogy we have, the same trade agreements, nothing is agreed until everything is agreed. and i don't think it's going to be a gradual process of, you know, we learn an agreement has been done on customs g.d. that's checked off. we move on to the next issue
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which may be migration. we won't know what the final deal looks like until towards the end of the process. really more into late 2018, early 2019. so i think it's going to be a lot of uncertainty next year. brexit just rumbling on there in the background and there's still -- there will still be this uncertainty and substantial premium and uncertainty premium, a risk premium on u.k. assets hanging there in the back. oliver: duncan, thanks for coming in late on a friday. appreciate having you on. looking forward to talking to you in the new year. dun julie: coming up, the outlook for grocers and merchants azzam zohn aims for the retail space. here's a look at how some food retailers have done this year. rocer, as we also call them. tumbling on the year. this is bloomberg. ♪
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julie: "what'd you miss?" -- each day this week we're taking a look at what you can't miss in various sectors for the next year. today looking at food retail and mass merchants and joining us now is bloomberg intelligence analyst jennifer from our princeton office. jen, thank you, again, for joining us. first of all, we have seen many of these consumer staples, grocers, not do so well since the election. as we've seen a rotation out. one of the things that people appear to be looking at next year is the potential impact of inflation on some of these companies. i'm curious what your take is. are their margins going to get squeezed, are they going to raise prices? jennifer: going into 2017 we
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are still in an inflationary environment. for food retailers that means gross margins will stay under pressure, sales will remain pressured. the good news is we're starting to cycle over some of the worst of the dedeflation and by the second half of the year we will start to see things get better. joe: so this stock we ran through before the break, look at kroger, whole foods, sprouts, they're all in the red. some more than others. the whole foods is they got ahead of themselves and assuming who is willing to pay the prices they charge. oliver:: but the big stores, how come they're having so much trouble? jennifer: part of what's happening is there is a shift in terms of consumers and what they're really looking for. and so what you're seeing is that people want to go to smaller stores, have faster shops. they want to be able to stay on the budget and they want retailers that will engage in some sort of digital wellway. when they look forward to 2017, the companies that are likely to do better are those that are keeping all of those things in mind.
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so even though they ended the year on a weak note, a lot of it was deflation related and hopefully going into 2017 you will see that consumer engagement taking place. joe: one is meal kits, things like blue apron, people buying meals as a package altogether for one meal. is that moving the dial yet in terms of how people buy groceries or is that too nearby niche to matter at this point? jennifer: it's niche. rather than trying to go into a business shipping to someone's home, you can go into an h.e.b.'s, whole foods and kroger and get a meal kit similar to blue apron and take it home and feed your family. oliver: is this popular outside of urban areas? in new ls to people
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york. what about people outside of major urban area? what is the bred for the user there? jennifer: once you get into suburban areas, the online growth is click and collect. you order online and then you go to the store and pick it up yourself. so what that does is that really hits the sweet spot for customers and for retailers because you still get things very convenient. you don't have to go into the store. and yet for the retailers they don't have to pay for the delivery charges. julie: of course the upstart as it were in that business, although it's quite a big upstart is amazon, amazon fresh, and the introduction there. amazon has disrupted some other types of traditional retail. is it time for it to happen in food? jennifer: well, it's slowly starting to happen. you see amazon making some interesting noise around food refail about opening stores with no checkout lines that people can walk in and take and use their smart phone and walk
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out the door. you talk about pickup points about the click service i was talking about. on a realistic basis, it will take a long period of time for amazon to really be able to change the behavior of most shoppers. most people want to go, pick out the fruit themselves. they like to brouse while they're in the store. that behavior will take a long time to change. joe: what does 2017 hold in store for wal-mart's grocer business? jennifer: well, wal-mart is the largest food retailer in the united states. they sell over 50% of their revenue is coming from food. and they've had a lot of intent to really revolutionize that business. they've been getting better at fresh. they've been getting better of having things in stock and rolling out click and collect very aggressively. if they can continue on that path, they have the ability to really lock down some additional market share going into 2017. julie: all right. bloomberg intelligence analyst jen.
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take two went well. for coming joe: this will dominate the market for voice activated assistance and that's something that rivals like apple and google can no longer ignore. this is bloomberg. ♪
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joe: what did you miss -- amazon surprise 2016, the echo speaker reported its best holiday sales yet. demand for the a.i. powered
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smart speaker proves there's a lucrative market for voice activated assistance in the home. something google and apple can no longer ignore. >> the top five most valuable tech companies in the world are all betting big on the success of virtual assistance that responds to voice commands. the rates really started with amazon's surprise hit, echo. it's powered by a digital assistance, alexia. >> how many championships has dan marino won? >> dan marino has won zero. >> how many oscars has alec baldwin won? >> alec baldwin has won none. >> consumer researchers said that amazon sold more than three million devices. and it was cheap. selling for the relatively low price of $180 a pop. but the real payoff was in amazon's core ecommerce business. >> the reason it's one of the faster growing business for amazon, it adds into the ecosystem that amazon has where
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they already have a bunch of traffic coming to their website but this is a chance for amazon to grab the traffic which is not online. >> echo owners are spending an estimated 10% more time on after buying the smart speaker. and amazon stock has popped more than 70% since the echo came out in the u.s. there's no surprise google wanted in on the action. >> credit to the team at amazon for creating a lot of excitement in this space. we've been thinking about our own unique approach, and we are getting ready to launch something later this year. >> that something was google home. it hit the market in october priced $50 less than the echo and loaded with google's own conversational interface which leaves us with the elephant in the room. >> me. it sure is great to be on the mac. >> apple's assistants, siri, has been out for five years now ince it was debuted on the
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4-s. by some estimates, only 23% of u.s. smart phone owners actually use voice assistance like siri on a weekly basis. >> it's so important a category and apple -- and amazon has proven there is a demand for information that apple would be insane not to get out there with a product that's similar. but it's all about the implementation and it's also going to be a real disadvantage not to have been first. >> then again, apple wasn't first with the smartphone or tablet. and bloomberg reported apple is pushing ahead with an echo-style competitive. so we can only expect this market to keep growing in 2017. with shipments jumping 130% to 21 million. oliver: it is time for the bloomberg business flash, a look at some of the biggest business stories in the news right now. few companies mamped jpmorgan's
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30% stock performance this year but even fewer corporate executives followed the c.e.o. who shelled out almost $27 million for his company's shares this year. most corporate executives and directors steered clear of their own stock as they became increasingly expensive but not jamie diamond. six of the 10 companies with the most insider buys this year the chief executive was the single biggest purchaser. president-elect's donald trump white house victory has driven up the prospects for higher bank profits. that won't keep wall street for keeping jobs. they will use technology to replace traders and branches. and the polar blast is poised to sweep the u.s. in the new year. and it's pushing natural gas futures up the most since the shale boom began a decade ago. according to the commodity weather group, frigid air will sweep the western 2/3 of the nation january 4-8, spoking demand for heating. the deep freeze comes from
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output from shale basin close. that will be the second straight annual drop. and that is your "bloomberg business flash." julie: coming up, gearing up for 2017. we're doing a little something different today for "what'd you miss?" our new year's resolution coming up. this is bloomberg. ♪
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julie: "what'd you miss?" our new year's resolution, my new year's resolution is to be nicer. to oliver. oliver: that's the opposite of mine. i resolve to get into a lot more fights on the internet. joe: i'm going to do my best to not hack any more national elections. i didn't realize we were on air. i'll be nice. joe: have a great evening. you are looking at the year-to-date results for the independent sees. we will see you -- for the independent is is. we will see you in the new
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>> you're watching bloomberg technology. let's start a check of your first word news. president-elect trump is raising vladimir putin's decision not to immediately retaliate for president obama's expulsion of 35 russian
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diplomats. trump tweeted, "great delay by v. putin. i always knew he was very smart." putin declined to expel any nationals despite the urging of his foreign minister. turkey's foreign minister says washington and moscow should put differences aside and join negotiations for a syrian peace process. he says the world does not need a new cold war. meantime, activists are reporting the first death in syria since the cease-fire began 24 hours ago. a judge's denied a request to delay a competency hearing for dylann roof. he's potential death sentence for the killing of african-americans in a church. roof will have a psychiatric evaluation this weekend and hearing monday. ruled the risk to free and fair elections by stopping the law to take into


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