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tv   Whatd You Miss  Bloomberg  December 13, 2016 3:30pm-5:01pm EST

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: we had a good conversation about innovation, how it could help education, impacting foreign aid and energy and it was a wide-ranging conversation about the power of innovation. tomorrow, silicon valley luminaries and other tech leaders will head to trump tower, including tim cook and cheryl samberg. joe manchin says that he will be staying in the u.s. senate, not taking a job with donald trump osteen. after a meeting in new york he said he was humbled to be considered as energy secretary, but people familiar with the selection say that the process will go on and that the job should go to rick airey. top nuclear envoys from the united states, south korea, and japan, say that they will be in fomenting to penalties against north korea. it could involve choking off the cash flow -- flowing into the nuclear weapons program.
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christmas in orbit. a japanese cargo ship arrived at the international space station with nearly five tons of supplies. nasa says that there are christmas presents for the two americans, three russians, and one frenchman on board. per day,ws, 24 hours powered by 2600 journalists and analysts in 120 countries. this is bloomberg. ♪ scarlet: i scarlet fu. joe: and i'm joe weisenthal. we are 30 minutes away from the close of trading. stocks going up, more joe: but the question is, "what did you
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miss"? oliver: we will take -- scarlet: we will take a look at the technicals in a moment. policymakers are universally expected to lift interest rates this year, but it economic conditions -- but economic conditions barely resemble last time they made that breaking the cycle. and donald trump has turned to the exxon ceo rex tillerson for secretary of state. turning into a battle riel because of his relationship with russia. we will be speaking with the harvard kennedy school dean, joseph nye, in a moment. joe: looking at where the major averages stand, abigail doolittle is standing by. abigail: the dow, the s&p, the nasdaq, all headed for a record close. was just mentioning,
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it did come within 50 points of 20,000. just a really fast move for stocks year. much of it is being attributed to the election rally. taking a look at the dow, a chart of the last three months to give perspective on the rally . here it is, not parabolic, but pretty close. it's worth noting that the direction -- election rally is pretty close. the question is -- have stocks got an extended? is the tao ahead of itself? we went to the bloomberg and be looked at 5318, this is the five-year chart of the tao in relation to its 200 day moving average. basically an indication of longer-term buying support momentum. cases over the last five years the tao has moved 10% over its moving average.
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2012, 2013, and for the first time since then, just now. the past few times this has happened it has tended to consolidate, so the chart may suggest some sort of near-term pullback, either this year or next year. all of the love is going to the dow jones, but let's take a look at the s&p 500 with the vix. it is a one-year chart of the s&p 500, hitting record highs today. the vix, in orange, near record lows. we can see this massive divergence. we have seen them in the past. they tend to tell us when things are going to become complacent and usually that means some sort of volatility or pullback is ahead. the charts may suggest that some sort of pullback in volatility is ahead for stocks, joe. thank you -- scarlet: thank you so much, abigail. "what'd you miss?"
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some lawmakers questioning the relationship between rex tillerson and vladimir putin. josie -- joining us now with more is joseph nye, considered one of the top scholars in foreign policy, he joins us from boston. great to see you. first of all, i want to get your read on this selection for secretary of state. what challenges would he need to in order to do the job effectively as america's top diplomat? well, i actually thought it was a good choice. that hes been criticism has been close to russia because he has had to deal with russia. that is where the oil industry has so many investments. in i can't imagine him being vladimir putin's pocket. he has dealt with him, he knows them. sat with him on a nonprofit board. i find them to be a reasonable,
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balanced person. someone coming up to the private sector who hasn't come up through the ranks in your view could be an effective secretary of state? joe: i think so. he will have a good, professional group of people around him who can help them with the flow missy. this is a smart man who has run a very complex organization in many countries. i think he's going to be able to handle the job. scarlet: i want to read you a "--e from of contributor to a contributor to "bloomberg view." joe: is u.s. foreign -- scarlet: is u.s. foreign-policy -- our
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diplomats in need of disruption? joseph: i don't go that far. i think we have got some of the good people in the state department who understand russia. used to be the deputy secretary at the carnegie endowment, he was ambassador to russia and he understood russia extremely well. ofs wasn't a factor in terms difficult policy. had a because we have difficult russia to deal with. let them your prudent's russia is not easy. joe: there are obviously growing governmentat that may have been involved in the hacking of the nails, perhaps hacking the dnc in attempt to meddle in this election. how big of a deal is it if that's true and what would be an appropriate response? should the government release everything it knows about it? how to deal with this going forward, in your view? joseph: i think we have to take
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it seriously. the russians have a habit pattern of interfering a lot of elections. in europe as well. now that they have interfered in an american election i have to think that we must show them that this is serious in that we take it seriously. if it were up to me i would themmend that the name of particular individuals involved have targeted sanctions on them. making it difficult for them to have bank accounts overseas. that's the kind of deterrent i think we need if we are going to avoid this behavior being repeated in the future. do you presume that the kremlin will be involved in future elections? and if so, would they take similar actions? well, there are
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press reports that russia has ,iven money to marine le pen the extreme right-wing candidate in the french elections. i would imagine that the russians are going to be involved in a number of elections. it's important for these democracies to show russia that there is a price attached to it. it's not a free good, which is why a think sanctions are important. joe: ultimately, going back to the current administration, you think that he would be a wise choice or make sense. what would a more constructive relationship look like between this government and the vladimir putin government? joseph: i think we have to maintain sanctions against russia to show that invading your neighbor and stealing territory by force is something that has a penalty attached to it. but it's also true that we have to do business with russia. there's just a lot of things,
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whether it is the arctic, the climate, iran, the middle east generally, where we have to be in contact with the russians. i think that his appointment means that we will have somebody who understands russia, but who will be in contact with russia. scarlet: you have made the point that americans seem to misunderstand their place in the world. do you think a donald trump correctly understands where the u.s. is in the world? are we in what part in the world? where is our place? colon the united states remains the world's largest power and is likely to continue to be that. i wrote a book last year called -- is the american century over? the answer is no. in that sense, the american leadership in the world is crucial. it doesn't mean that we have to be the world's policeman or get
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involved in every conflict, but theoes mean that in being leading country, we are likely to be the largest and that means we have to take the lead. , he all right, joseph nye will be staying with us. next we are going to talk work withopolitical china and the tensions building with our largest trade partner. ♪
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joe: "what'd you miss?" donald trump accusing china of ripping off the u.s. on trade and branding the country a currency manipulator. yesterday we spoke with the global head of rates, who said
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that the tension between the u.s. and china is troublesome. >> this is my single biggest worry for 2009. i'm pretty bullish, but i fear that the u.s. and china could be on a collision course. still with us, joseph nye. how big of a deal do you think the fact that trump seems to be ripping up the script a bit with u.s. china relations is as a geopolitical risk going forward? it depends on how far trump goes. if he tries to use this tougher leverage on specific, smaller, achievable goals -- let's say getting some sort of restraint on dumping of steel or on better, more equal treatment of american companies, it may do
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some good. on the other hand, if we get into a trade war with china, tariffs and a tit-for-tat retaliation, we both lose. it depends on how far he goes. -- scarlet: is he targeting up china unfairly? joseph: i think that if you look back at china's participation in the wto, they have obeyed the cases that have been brought against them, but they are still not a full market economy. chinese state owned enterprises still are not exactly the same. they aren't treated the same as american corporations. pushing the chinese on that is valid. as for currency manipulation? that was true in the past. most people think it's not the
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major problem now. joe: trump has said that the one china policy is not a guaranteed thing. how is china likely to respond to this? from a geopolitical perspective, people are worried about that. people have talked about the domestic pressure on the government to respond, given how important the recognition of taiwan is. play out next? spell out how you see the different moving parts. joseph: well, from a chinese point of view, the fact that taiwan is part of china is what they call a core interest. anything that would seem to imply questioning chinese sovereignty or secession for taiwan would, i think, be very dangerous. the chinese have said that this could be to war. pushing it too far might. callhen trump took the
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from the taiwanese president, that was out of the ordinary, but not all that dangerous. when he says that we might reconsider the one china policy, that begins to tread on dangerous, slippery ground. on the other hand, he conditioned it on getting a better trade deal from china. then sounds like he's using it for leverage. and that has led the chinese to the policy towards taiwan is not for sale. it has also led some taiwanese offenders to say -- groups, our interests might be traded away. it's uncertain where this is going to turn out. scarlet: coming inside the bloomberg, we have a chart that showcases how taiwan shapes up with a share of gdp. it is 1/5 the size of china.
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maybe taiwan is just as guilty of this. joe: that's for the surprising. is there something to be said for this sort of unpredictable diplomatic strategy that trump has taken so far? when he took the call from the president of taiwan, everyone asked -- was this an accident, a long planned thing -- did he know the significance of it? keeping everybody guessing, keeping them on their feet. from a classical international relations diplomacy perspective, does this have some value that says -- maybe there is something that could be gained from this? the phonell, i think call from the president of taiwan was carefully planned and i think you knew what was happening. this was not an innocence abroad kind of case. and i think he's doing it to put the chinese on edge. and as he says, the art of the
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little bit a unpredictable, putting your opponent on edge can get you a better deal. on the other hand, you don't want to push it so hard that you miscalculate. you don't want the chinese to say -- my gosh, these people are going to tank -- terror the shanghai communications that nixonated back to richard . a bit of uncertainty for a better deal with trade is one thing. making the chinese begin to think that we are out to get them in the long run and that that means that they should act sooner rather than later, that's not helping. which may be why he tempered that with choosing one of her friends as a ambassador to china. what about other troublesome areas, like russia? voice felt that
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russia, a country in decline, is more dangerous than china. declining countries take greater risks. that was true of austria on the -- on the eve of world war i. rising countries can bide their time a bit better. china is a rising country. i doubt that china wants direct confrontation with us. that said, in both cases, the big danger is an accident, a miscalculation of person -- pushing our advantage, our luck, and suddenly getting in over our heads. i could be true of either china or russia. what about these smaller players in the world, when they hear trump talking about things like wanting money to fulfill japan, korea,ts, expressing misgivings about whether they are worth it -- what are the ramifications of that kind of talk and that some
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of these commitments are not ironclad? there is ahink danger there. while it might be good to have a bit of uncertainty in a trade negotiation with a country like china, when you're talking about japan or europe, where you have an alliance, that's not like a real estate deal. it's more like a marriage. your partnerping on edge and saying you might leave your wife, that's not a ory smart way to reinforce solidify an alliance. japan, for example, we are them to get nuclear weapons. they don't want nuclear weapons. but if they think we might leave them at some point, they might decide we have to go in that direction. joe: final -- scarlet: final question here, what is the number one thing that secretary tillerson would need to address, presuming he gets confirmed?
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joseph: he will have to repeat that the united states is still the major country in the world in terms of maintaining international alliances and institutions. this is a system that we set up after 1945. it has served us well and serve the world well and it needs react the nation. , former dean of the harvard kennedy school of government, thank you very much. scarlet: coming up next, the that is paying off, but we will have more for you, next. ♪
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weisenthal. "what'd you miss?" an extraordinary rally in the dow, of course. we are closing in on that round is it really
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sustainable? this chart goes back to 1998 and looks at a measure of relative strength and momentum in the dow. as you can see at the very end, this relative strength measure is absolutely off the charts. anything in the red has historically presaged some sort of selloff. they call it the overbought territory. measuring the relationship on the number of gains to recent losses, just so many piled on top of each other day after day. anything could happen. we could get to 20000 and take a break, we don't know, but history says that when you pile on this mini games, we are an extreme territory and could see a selloff. scarlet: it all depends on the catalyst. exactly. the market can say overbought longer than you can say solvent is a variation on some phrase. scarlet: alternately, we are
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taking a look at gary cohn as he plans to serve as donald trump's main economic advisor. looking at his stake in goldman sachs, his shares, since election day his shares have increased by $46 million. as you know, has jumped as much as 33% and on monday got within $10 of its all-time high. on top of that, he can sell the shares tax-free if you reinvest the proceeds in treasuries or a government approved fund. on top of that, goldman sachs reportedly has an exit plan for executives who leave for government service, because there are so many of them. for him it would be about 50 mine -- $59 million in stock awards that he would have received. also tied to hitting future financial targets and health premiums they get paid out as well. the board would need to approve it.
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pretty good payday. let's get you to the market close, that is next. less than four minutes to go before the close, record territory for the dow industrials. this is bloomberg. ♪
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♪ scarlet: we are moments away from the closing bell.
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"what'd you miss?" u.s. stocks are jumping. near 20,000, but doesn't get quite there as the fed begins its today closing watch policy meeting. i'm scarlet fu. joe: and i'm joe weisenthal. welcome to our viewers who are tuning and live on twitter. you can watch the coverage on twitter every weekday from 4 p.m. to 5 p.m. eastern. scarlet: we have some breaking news. ibm, laying on a plan to hire 25,000 workers in the united states and invest $1 billion over the next four years. this comes ahead of this trump a meeting with tech executives. obviously the message here, there are a lot of concerns from the tech industry about off shoring and immigration policy that might hurt these companies, so this news about plans to invest more, domestically, seems
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to be connected to that. scarlet: laying out her vision to fill technology jobs before meeting with donald trump tomorrow. let's get you to the market minutes. when you look at what has been going on in equities, another day, another record. i feel like a broken record, but we really do -- joe: it really is remarkable. at one point today we were 30 points away from the dow 20,000, which really great for round numbers. it fell back a little bit, really powerful, but tech was leading the way. scarlet: it is higher than what happened with the 20 day average and the dow industrials being up 30% above the 20 day average. the gains really started in europe. that set the tone. the stoxx 600 is the broadest measure of stocks, good for a 1% gain. this after they laid out plans
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to raise capital. of course, that stock, jumping 16%. the beleaguered tech sector is really playing catch-up before those executives meet with the president-elect tomorrow. apple is one of the big gainers. energy stocks also building on those gains. up for the ninth time in 10 days. murphy oil is one of the big gainers. let's look at government bonds. two-year and 10 year u.s., not doing a whole lot. they swung around a lot. to year is a policy sensitive part of the curve ahead of the big fed decision, ticking higher. the idea of a fed hike is basically locked in, but the two year yield is going to depend a lot on what the fed signals for its forward activities, so expect action on the short end of the curve tomorrow. we have been paying attention to the chinese 10 year, as it has gone up another .10 -- that one
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has been up a lot lately. currencies, the dollar is little changed, for the most part. you are looking at dollar-yen, euro-dollar, and the pound. it came up earlier, sparked by a report showing that inflation is at its fastest rise in two years. it had strengthened, but as you can see, it gave up the advance and is now down slightly versus the dollar. joe: finally, on commodities, kind of a quiet down for oil, basically unchanged, iron ore very sensitive to what's going on in china. there was even some good chinese data that didn't really seem to help, the chinese financial markets have an kind of weak lately. and those are today's market minutes. now, let's get more on today's stock record with andrew sl
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immon, managing director at morgan stanley. are we going to hit it and blow past it in your view? andrew: you said it, the market is overbought, but i don't see it stopping until closer to year end. scarlet: are we seeing an exit -- actual rotation to the beleaguered industry? andrew: you said it right. the financials and industrials were the first out of the gate and now people are looking for -- where can i get involved in the market that hasn't participated? that's the tech sector. a meeting with the president-elect only helps to spur it on. one thing we have been talking about here is that in every way imaginable, investors haven't caught offsides. first of all, they didn't think that trump would win. that if you did, it would cause a selloff. underwas a lot of exposure to equities.
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a lot of overexposure to bonds. in every way imaginable, it seems like people were not positioned for this. how much has that position changed to sort of get more on the right side of things or is the more catch-up, still? that isthe thing fascinating about this is that the economy hadn't earnings recession into 2016. as you look at the numbers, it was easy to figure out the next year we would have big earnings growth. the problem with the election is that everyone was so focused on it, no one was focused on the fact that oil had gone from 25 to 50. you start looking at the numbers and you think -- my gosh, we will see 12 to 13% earnings growth? afterwards where you said -- gosh, the economy is starting to recover. small caps are working. the high-yield market is working . the point is that it has something to do with the election, but it also has a lot to do with the fact that we are going to see real good earnings growth next year, even before --
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joe: was the election a catalyst for people to take a fresh look at what was already in progress? andrew: we are hearing from companies that the election is behind us. i'm not sure that it is about who got elected so much as it's behind us, so let's look forward . there seems to be more optimism. i'm not sure it's just too was elected, it's just that the election is behind us. the key thing here is that regardless and without any fiscal policy reform coming down the pike, we will see 12% to 14% earnings growth next year in that has been pulled forward somewhat, but none of the numbers for next year bake in anything like corporate repatriation or tax cuts, none of it. that's still out there. scarlet: so, there's still a lot out there that could spur further gains, but what will it look like? it won't shoot up as we have already seen. and there is going to be a long lag time between the policies
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being enough and taking effect. right. that's the next thing that's going to happen is the first quarter earnings report. the numbers for next year, $133 for the s&p, that's embedded with good recovery for materials. if those numbers are lower or have to be brought up, the market drives higher, but you are absolutely right to the extent that none of this stuff is going to start on january 1, it's going to take some time. i do think that the concept that we don't have central bank policy as a backstop means that there will be more volatility next year. i think an important concept to consider is that as inflation begins to pick up, you get more topline revenue growth. with more topline revenue growth , the multiple initially on the market goes up, it doesn't go down. that's the playbook.
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joe: how does the strengthening u.s. dollar play into it? given expected monetary policy diversions, fed hikes, people think that 2017 is going to be a great year for the dollar, although they thought the same thing about 2016. but if it does continue to strengthen significantly, how does that ultimately play out for the s&p? not be good.ll in 2014 the dollar appreciated by about 25% and it hurt earnings, right? it is only up about 10%. here's the question i want to ask you. if higher interest rates always lead to higher currencies, how come the best currencies in the world aren't the ones with countries that have the highest interest rates. it means that inevitably there is a little bit more inflation. people not automatically running into that currency. that's why i think the dollar isn't going in a straight line. i do question this area if rates go up, the dollar has to go up.
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historically that hasn't been what's happened. last time you were on in august, you mentioned small caps outperforming and the expectations playing out with the latest data and this idea that donald trump is going to pursue and america first policy plays too small cap strengths. what are the running processes like for these companies when you have got rising oil prices and a stronger dollar? large-cap equity portfolios, but i think the key thing here is these multi-cap companies, the effective tax rate is not the full rate because they make so much money abroad. a great focus is to think about what companies will benefit the .iggest from a tax cut is that small cap or domestically focused? and that's why they are really starting to work. some people call the latest
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ecb decision the taper, others revise what they had in place. inre were several elections 2017. -- are going to be several elections in 2017. how does that look? andrew: i think that europe will be the best performing market in the world next year and the reason for that is that things are bad and are priced bad. we are coming off one decade of the worst performance in your of relative to the global market. ever. stocks are priced as if nothing is going to get better. ,ook at brexit or this election looking at what's going on in europe, there is a movement more towards stimulating economic growth. i think that value stocks are going to work very well here. scarlet: all right, andrew slimmon, you're going to stick with us. coming up we are going to discuss asia. the malaysian currency, crude oil, it's going to change a
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little bit. this is bloomberg. ♪
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>> let's get to first word news. for shots are being fired and what's likely to be a confirmation battle over donald trump's pick for secretary of state. marco rubio says he has serious concerns about exxon mobil ceo rex tillerson. over the weekend the question is ties to russia. he is a member of the foreign relations committee that will hold hearings on the nomination. at the white house, president obama signed into law legislation that new investments into cancer research and battling drug abuse your get mr. obama signed the measure length
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by joe biden and key lawmakers. investing 1.8 dollars in a cancer researcher moonshot, strongly supported by joe biden. his son died at brain cancer last year. investigator still they still -- said they still can't and that -- pinpoint the specific cause of the fire that killed 36 people in an oakland warehouse. prosecutors have warned that murder charges are possible as they determine whether crimes are linked to the blaze. building department inspectors have not gone into the warehouse since at least 1986. confidence vote has been one in italy. was 368 tor house it 105 in favor of the new government. outlining the agenda to lawmakers earlier today, he is hoping to have his government in place before a european council summit on thursday.
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global news, 24 hours per day, powered by 2400 journalists and analysts in 120 countries. this is bloomberg. scarlet? thank you so much. andrew, i want to take you on a deep dive into the bloomberg. reminder the can find the charts on the bottom of the screen. usually emerging markets are supersensitive. well, things typically strengthen. that is what has happened for the most part for the last five years. let me just stress this up to five years. hold on one second, there we go, five years. you can see that it has moved in tandem. switching past one year, it has changed a bit. break downtarts to the relationship late in august, early in september, when treasuries began struggling. do you go about
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differentiating emerging markets when the dollar seems to dictate everything? that's a great question. that's a misnomer. people assume it will go down at the dollar goes up. the answer is that commodity prices usually we can and that's not very good for emerging markets. i think the fact that commodity prices have stayed high is going to support the emerging markets index is, even though the dollar benefits. some of these divergent sees that have appeared since the election may start to close in the favor of emerging markets? stocks, yes. i'm not worried that this is the start of the end of emerging markets for that reason. i want to go into the bloomberg and show how dramatic the shift in sentiment has been. how many shorts of debt, it absolutely exploded. people short of u.s. treasuries
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at the highest level since 2014. the line just shot up at the end. what do you make of how quickly people have reassessed everything? i think this speaks to what you're talking about in the first block, people looking at his win and telling a completely new story. it is remarkable the degree to which people were like -- come on, they have a completely new story to tell about inflation, growth, and the fed, that would have been weird a few months ago. andrew: i'm not a fixed income manager, but my response would be that people were not focused on the fact that the economy was recovering. there was a lot of data out there saying that the economy had recovered. the flip is that they were too consumed with the election. said another way, i'm not convinced that if hillary clinton had been elected president, we wouldn't see some of this also coming to fruition. what about the focus on
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politics now? we have this fed decision tomorrow. everyone is still consumed by trump, reading the treatment -- tea leaves, seeing if he's going to name a company. our people still too focused on the significance of the administration? andrew: this is a good time to own stocks. if i had contemplated taking gains, wouldn't you push them to next year, when there was a chance that cap -- capital gains would be reduced? why would you sell in the last four days of the year? i agree, the market looks overbought. the fed comes out and raises, maybe the market just walks away or continues higher until we get into early next year. joe: -- scarlet: but there is always headline risk as well.
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donald trump could tweet about company stockour crashing. have you manage that? there hasrst of all, been very extreme reaction in certain sectors. on the one hand you can scratch or had, on the other you can take advantage. some of the industrials in my opinion ran away with too much. to the extent that they are making some adjustments? yes, but we sought with defense stocks. we made a tweet and there was risk to the margins and is come -- companies. you have to be aware of what he's saying and think about what industry will be affected. the was interesting what you said a second ago, people waiting to sell their stock to see it there is a capital gains tax reduction. in the past when there has been expected change in the capital gains rate, was there some evidence of a shift? andrew: yes, that's a great little -- typically for the middle of december through the first quarter, all the losers of
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that year start to rally. because everyone gets their tax loss selling in from november to the middle of december. that is when the stock start to recover. all of the leaders the people wait for it at the beginning of next year, that is why the laggards tend to outperform the leaders from right around now until the first quarter. joe:. her's and. scarlet: all right -- very interesting. will lookll right, we for financial to underperform for a little while. andrew slimmon, thank you. up, trump us picked for secretary of state is drawing controversy. this is bloomberg. ♪
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joe: "what'd you miss?" president-elect's pick for secretary of state is drawing criticism from some, others like vladimir putin are doing him praise. wayne. us now, alex is there really going to be a fight over this in the senate? or is everyone just going to come around? alex: the kiss of death for mock set -- moscow, right? gets to thermation foreign relations committee in the senate, he will be confirmed . the guy to watch year is marco rubio. little marco, if you remember his devastating nickname for him. to change sides and join all the democrats on that panel in voting against tillerson, the nomination would fail, that is how closely the committees are divided next year in the senate.
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if he gets to the floor, i think he's going to be confirmed. -- scarlet: another question is how much the democrats extend their firepower on this. alex: right, hillary clinton's former press secretary said that they should save their guns for steve nation. there are lots of guys that trump has nominated that democrats might want to target. pruitt, from oklahoma, the incoming epa chief that doesn't believe in global warming. tom price, will be a secretary at hhs, human services, and about opponent of obamacare. these are guys who might be more objectionable than tillerson, as long as tillerson can convince senators that his russian connections are not going to be problematic as secretary of state. another name that we got,
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rick ary to lead the department of energy. everyone is going to make a joke about that. the more interesting angle that people are talking about is how the department of energy is more involved in science and nuclear physics than it is oil. texas is an oil state. but if oil is not really part of the gop purview, what is he doing at that department? what is the logic behind rick perry? alex: i think that this is a loyalty appointment from trump. rick harry dropped out pretty quickly to endorse trump. this is the spot he's going to get. i kind of feel like his background would make them better suited for the agriculture department. as you know, the energy department is really a science agency. its biggest job is to maintain the country's nuclear arsenal. this will be the first time in several years that that department is not led by an
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actual scientist. scarlet: yeah, that would be a change. of all the different nominees, which of them are the most vulnerable to not being confirmed by congress? i don't think that to -- alex: i don't think that tillerson is a sure thing at all. bill gates and condoleezza rice work for a firm that represented exxon, so i don't know that their public support is entirely credible, i'm afraid. he's not going to get a free ride. next on my list would be the oklahoma attorney general, pruitt, for epa. he's a guy that i think democrats will be happy to go to the mat over because of his views on climate change and how much that issue distinction the democratic party from republicans. as is -- as mentioned, tom price.'s a good day for you were going to os a dollar if
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mitt romney got the nomination. you are off the hook. the question is, was this entire thing an attempt to humiliate romney and string him along? or was he really in contention? alex: look, at the least, donald trump is now neutered mitt romney. he can no longer credibly resent himself to the american public as an opponent of trump. as someone who will criticize trump for his policies or behavior in office. mitt romney is out of the game now. i don't know about humiliation, but he is certainly neutered. pretty brilliant play. thank you very much, alex lane. counting downe the hours to fed decision day. we have a chart for rate hikes that are near certainty. this is bloomberg. ♪
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>> let's get you first word news this afternoon. goldman sachs president told the company in a podcast that saying goodbye is hard and he's leaving the wall street giant in a strong position as he accepts a new role as president-elect trump's economic policy advisor. >> today for a variety of reasons, capital regulatory reason, the competitive landscape has changed pretty dramatically and we're as uniquely positioned as we have been in the competitive landscape. as i look forward into the future yields of goldman sachs, it's as exciting as i've ever seen it. >> cohn will head the national economic council, among the
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most influential panels inside the white house helping coordinate and develop the president's economic programs. and president-elect donald trump had a meeting with microsoft co-founder bill gates at trump tower. the spokesman said mr. trump wants the u.s. getting back to being innovators and inventing and making things in america. 20 million adults and more than three million children have health insurance because of the affordable care act. a council of economic advisors says the rate dropped in all income groups since 2013. global news 24 hours a day powered by more than 2,600 journalists and analysts and more than 26 countries. joe. joe: thanks. we have breaking news here. wells fargo for the second time has failed a feds living will test. of course, this is a postcrisis regulation. banks are supposed to give a plan for how they would wind down the event of a failure.
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this is the second time the fed -- that wells fargo has failed in the regulators' view to come up with a specific plan. they're going to resubmit their plan by march 31, 2017. in the meantime, wells fargo's prohibited from establishing international bank entities or acquiring any nonbank subsidiaries. so once again, wells fargo, for the second time, has been rejected by regulators. the living will plan has been deemed inadequate. for markets overall today, rallies once again into the green. dow within 100 points. 20,000 ahead of the big fed meeting. speaking of which, scar, you're standing by with a preview? scarlet: thanks, joe. in terms of what you missed, it's been an almost 12 months for the fed liftoff. there's been lots of talk and no action. janet yellen and the fed are poised to increase interest rates once again. let's take a look at the chart in today's "numbers don't lie."
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the market is pricing in 100% odds that policymakers will raise rates on wednesday. what you're looking at here is the fed funds futures. the orange line indicates the odds of a quarter point hike. it's at more than 90%. actually came down from 100% because the likelihood of an even bigger hike of 50 basis points, that is the blue line, is starting to creep up. it's now less than 10%. now, the fed stresses its data dependencey. well, the economic data looks strong enough to withstand another rate increase. the releases have been topping estimates at the fastest pace in two years. this is a bloomberg u.s. economic surprise index, the orange line. it's certainly gaining and helping fuel the equity rally that joe was talking about as we get ready to close out the year. one of the fed's two mandates is to manage inflation. it's saying the last few years where prices reached 2%. that's the yellow horizontal line there. and you can see how various measures of inflation are coalescing around 2%. you have core pc-8 and core
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c.p.i., the orange and blue line, about 2%. the markets are pricing in a ramp up in inflation. look at the break even rates for the 30-year. that is the white line. and for the 10-year, that is the orange line. they measure market-based inflation and both lines spiked since the u.s. election. now, in addition to inflation, the fed's other thing is unemployment. thein unemployment rate for the 35 to 44 age group rate and the orange the prime age. both are trending higher since the crisis. finally, we'll find out how the positive turn in economic data will affect the famous dot plot. this shows projections since the live meeting. you can see more of a convergence where they see the trajectory of rates, the orange line, and the market anticipates, the pink line. beyond the rate decision we'll
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be tracking the fed's economic forecast and language tied to the characterization of the economy. be sure to follow bloomberg starting at 1:00 p.m. tomorrow for the full coverage of the fed. joe. joe: for more now on decision day for the fed let's bring in priya misra at t.d. securities. not even going to talk about whether there's going to be a hike or not because everybody assumes that's a done deal. what's the number one thing beyond that that you'll be looking for and expecting tomorrow? priya: well, the dot plot. in terms of 2017, the dot plot as of september have two hikes. is there some shift there? in my view there won't be a shift. the fed will talk about gradual two hikes there. there the shift
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markets there the markets will react because it complies the fed height hike sooner. the dot plot is important. i think it will stay. i think the market will focus on forward guidance the fed has been providing. do they start changing that? and i think most importantly in the press conference, how does janet yellen sort of handicap monetary policy going forward now with this potential for fiscal policy? we'll try and understand the fed reaction function because we have uncertainty around fiscal policy. if we know how they will react we will be able to calibrate market to that. i think that will be a little bit nuanced in the press conference but we will be focused on that. scarlet: how do you think it will show up in the dots of the economic projections? i was talking to peter yesterday. expect the numbers to broaden out because we don't know how it will play out. priya: i can see it widen and compressed. we heard this from the new york
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fed president the other day, what fiscal policy so far tells him is the downside risks are reduced. so i can see some of the lower end of the dot plot actually moving higher. for the high end, i actually think they are already fairly high. you may have to become more optimistic for them to move it above. i think you can potentially see a narrowing of the range in the dot plot. i think if there was more of an inflation feel or if we had realized the labor markets were completely closed, i can see inflation is -- they are not back to the average over the last 10 years. they've certainly come off the lows. again, the downside risk of deflation is gone. now we're talking about how much higher inflation risk there is. joe: let's talk about the market because we've seen a pretty remarkable jump in yields. the rise started the summer but it's been pretty dramatic since
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the election. and i think the question that really matters is, is this just another sort of cyclical upswing in yields, the long decline that we've seen over he last 30 years, or is this a meaningful shift to the trajectory that we've seen for a long time? is this it, so to speak? where do you come down on arguably the biggest question in markets right now? priya: i have seen the rise in rates over the last few years because you look at it last year or what we saw before the election was typically central banks reducing accommodation. to me if you get that it's almost like the baton, i want to shift the baton but i don't have anyone to shift it to. so it's like fundamentals are not changing. all you were getting was central banks to pull it back which could not be sustained. therefore, any increase in rates was a buying opportunity. to me the election -- and i think it's not just the election of president-elect trump. it's also the fact you have a republican sweep and you have
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now significant unity among the republican party. so the ability for president-elect trump to actually get fiscal easing done is much higher today than it was even, i say, even before the election. even if you believe he was president, divided government would have made it really hard. i think now monetary policy might be stepping back, but they have somebody to pass the baton to. we did change our rate focus. i had a lot of pushback initially where people felt 275 which is our -- where we can go, seemed high on the 10-year. now i am getting pushback saying we can go 3 1/2, four. that's back to the new norm. i have not changed as much. i think global rates are still low. i am not sure if we're changing. is productivity going to change longer term? i hope i'm wrong on this. i hope we do something on infrastructure. if that does not change, we are not going to get a sustained rise to 4% on the 10-year. but i think the move, i am not
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feeling it up beyond 3%. i don't think the long-term growth potential will change. joe: ultimately there are structure fact ures in pace you are not ready to change yet, there is this fiscal impulse and that will change the story a bit but the big things that take a long time to change not enough fundamental change there yet? priya: yeah. a lot of the downside has been taken out. we are getting fiscal easing. we have not had fiscal easing close to -- but demographics, productivity, these are global rates. look at the difference between treasury -- between treasuries and bonds. it's really high. that will cap the move ultimately where investors will say, why am i buying 10-year? let me move into treasury. i don't think the move is happening yet because we will see where the 10-year will stabilize. ultimately that will cap.
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all of that has to change i think before you can get the second leg higher. scarlet: speaking of rates and where they could go, one is is holding a webcast and said if rates go to 6% presumably the 10-year in three to four years there would be a big expense problem. 6% would get us back to early 2000 which seems like a lifetime ago. there would be an entire generation of investors who have never seen 6% rates. how big of a problem would that be? is it going to be an expense problem? is it going to be -- how do you find it? how do you deal with the invest problems? priya: there is a good way you can get to the 6% problem. we're growing better so we can handle all that trajectory. if we get to 6% i hope that's where we're getting. we have immigration overhaul which improves the demographics. we're able to invest inrd. that's how we get it higher.
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if the public sector goes out and invests in something that changes productivity, if you get g.d.p. close to 6%, then interest rates rising, yes, we have a big debt problem. the other way is what is -- what would keep me up at night. if you get the 6% without the improvement in growth, all you're doing is creating perfect scenario for the next recession because the way you can get that 6% is an inflation increase but also real rate increase and i don't think the economy can handle it. most sectors will get hurt. certainly the debt problem. and then you brought up investors. duration risk in the market is much higher today because at lower yields, duration is higher. i think we haven't had this interest rate shock. a lot of people think we're in fixed income and safe. and duration risk and that's a problem. joe: not necessarily risk-free. priya misra, head of global rates strategy at t.d.
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securities. scarlet: you want to check bloomberg's coverage of the fed decide that begins at 1:00 p.m. eastern. we have a full roster of economists from bill gross to glen hubbard and alan to weigh in on the first rate increase in more than a year. this is bloomberg. ♪
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joe: "what'd you miss?" another step to tighten and reduce capital outflows, i sat down with bloomberg have you columnist kris balding of the concern of china's outflows. christopher: we will see $925 billion worth of outflows out of china. there's probably about $340
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billion of netrd outflows we're seeing this year in dollar terms that's not showing up in off-shore centers like hong kong and taipei. this is a big concern and every month it seems like they're releasing some new capital tightening measure that simply isn't having the impact that people expect it to have. the primary concern should be that even though they've been releasing these measures on a near monthly basis it really hasn't made much of a dent and in fact we'll have almost another trillion dollar outflow in 2017. joe: where does it go next? strongle capital outflows or is there another policy approach that could actually work to stem the underlying causes of the outflows? chris: well, i think it is very likely you'll see more policy responses in 2017. just about two weeks ago, they announced the tightening so that all capital account transactions over $5 million had to be approved out of
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beijing. there's also i think the very likely possibility that in 2017 at this rate within six to 12 months they'll place additional restrictions on current account transactions which they liberalized back in 2012. but they are increasingly worried. the fundamental problem is that the chinese economy is very weak. it's dependent upon stimulus, and international investors are much more savvy about china than they used to be and they simply aren't interested in placing their money in such a high-risk situation. joe: you mentioned dependent, the economy being dependent on stimulus. is china in a catch 22 where if it, you know, spends more money on stimulus to keep the economy going, that's just money that tries to eventually find its way out the door? chris: that's exactly it. as long as they have been stimulating the economy through monetary and fiscal channels, we've been seeing an enormous amount of this money leave china. and in fact, the pboc has said
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a number of times they are using different channels to provide monetary stimulus that they believe will not end up in china -- outside of china. i think all evidence points to the contrary that this money, no matter how they provide in additional liquidity, is ending outside of china. joe: let's shift gears to the u.s.-china relationship, which is already in the spotlight with the incoming administration in the u.s. donald trump hinting that the one china policy could be contingent on some sort of new trade deals, new trade discussions. how is china likely to respond to these noises? chris: this is absolutely crossing a red line for china. this is not something that they will take lightly at all. they were probably willing to tolerate the phone call to taiwan. it seems very reasonable from a policy perspective for the incoming president to push china to open up its own markets, which are incredibly closed, for both investment and
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trade. however, discussing the one china policy and even disavowing it as president-elect trump seemed to do, that is absolutely crossing a red line for china and not something they are going to take lying down. joe: so what are some plausible responses we could see to this? chris: china is very savvy. so far their response has been relatively measured. more nationalistic papers have referred to trump in less flattering terms. but what is more likely response from official china, if -- to start something small. maybe canceling some contracts. slow walking certain trade deals for companies or approvals, things like that. i don't think it's likely they're going to respond in a big way, and partially because they understand the sensitivity of this. they're going to want to push back but not shove. joe: how does this end up playing out for taiwan? i mean, the current situation
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roughly stable. everyone sort of recognizes, acknowledges the status quo is sort of stable status quo. how could things turn out for them? chris: i think taiwan is very understandably somewhat worried about this situation because as president-elect trump alluded to yesterday, he's essentially using them and taiwanese democracy and human rights as a bargaining chip in trade negotiations with china. so this cannot seem, if you're taiwanese, to be the most loyal of allies that's offering you up like that. so this will be worrying to the taiwanese. joe: so even on citizensibley it's a more favorable view of taiwanese sovereignty it could end up being a negative? chris: absolutely. because, you know, trump is proving essentially to be a fair weather trend on this
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issue. it seemed to be that he was tentively backing them by talking to the president, but then essentially backtracking and saying, i'd be willing to trade to discuss the one china policy with regards to a better trade deal. that can't make the taiwanese feel very good. joe: that was chris balding, bloomberg view columnist, an associate professor of business at the hsbc business school. scarlet: coming up, mohr stepback for wells fargo. we'll take a look at what it means if the so-called living will is adequate. this is bloomberg. ♪
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scarlet: wells fargo failing for the second time this year with the living will. they could not persuade that -- without reeking havoc on the
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financial system. joining us is jesse westbrook from washington. it looks like wells fargo will have to go back to the drawing board. does it make that much a difference for the bank itself? jesse: well, it can if they can't fix the deficiencies in the next few years. under dodd-frank, it's potentially breaking up wells fargo, so it's quite a red flag. it probably sends another signal to investors who are already sort of put off by the phony account scandal, that this is a bank that can't really get its house in order. so as you point out, no immediate severe consequences, but pretty severe consequences if they can't picks these problems within the next couple of years. joe: jesse, there's a new administration coming. there's talk about regulatory rollback, regulators who are staffing these agencies may be less aggressive. if you're wells fargo, why not sort of run out the clock and
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see if we can't get past this without having to do anything? jesse: well, that is a strategy, running out the clock might not always work. we don't know exactly what trump's perspective on too big to fail banks will be. you know, there is sort of bipartisan agreement among republican and democrats that there are still banks that are too big and could threaten the economy, the financial stability, etc., if they fall. wells fargo certainly fits in that bucket. now, whether they would get a reprieve from a fed overseen by trump appointees, that's an open question but fair question. scarlet: very quickly, jesse. we only have about 30 seconds left. what are the consequences in the near term if wells fargo does run out the clock? are there any? jesse: there's a few. there are more hurdles toward making acquisitions both internationally and domestically. wells fargo probably wasn't in much of an acquisition mode
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anyway considering some of the restrictions placed on them after the settlement over the bogus account scandal. it is a hurdle. joe: thanks very much. a very quick don't miss this because we have the fed decide special tomorrow starting at 1:00 p.m. eastern time in new york. of course, the fed announcement will be at 2:00 p.m. so huge day ahead for us covering the big event. scarlet: that does it for "what'd you miss?." thanks for watching. joe: have a great evening. this is bloomberg.
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>> you're watching bloomberg technology. let's start with the check of your bloomberg first word news. president obama signed legislation for new investments in cancer research and battling drug abuse. mr. obama signed the measure at a ceremony flanked by vice
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president joe biden and key lawmakers. the 21st century cures act invests for a cancer research moonshot that is strongly supported right joe biden. the obama administration is terminating some sales of military arms to saudi arabia. the senior official tells the ap that there are concerns about the killing of civilians in yemen by saudi-led coalition's. president-elect donald trump plans to make rex tillerson the next secretary of state and that could give the keystone xl pipeline a leg up. if approved the exxon mobil chief could approve the permit that is a requirement for energy products -- projects that cross the international order. rejected thema pipeline in 2015. joe manchin said he will be staying in the senate and not taking a job with resident elect donald trump steam. the democrat said he was humbled


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