tv Bloomberg Daybreak Americas Bloomberg December 14, 2016 7:00am-10:00am EST
i am jonathan ferro. in the markets, fed decision day. winning seven-day streak. almost 20,000. futures are negative. the stage is set for a federal reserve rate hike. the bond market, the action looks like this. the yields on the 10 year down by 10 of -- three basis points. david: here is what you need to know. decision day. the federal reserve gets ready to raise rates for the first time in a year. investors looking for signs from janet yellen up off the fed's rate hike path. the danger of high yields. a 10 year treasury yield above 3% will punish the markets. feeling his cabinet. donald trump announcing his intent to name secretary -- governor rick perry as secretary
of energy. will he get his weight? -- way? that's what you need to know. fed decision. bloomberg's michael mckee. the lead line today, the fed finally nails economic projections except the one that matters, rate hikes. -- inflation. what does it mean? michael: it may be the fed last hurrah. wall street moves from the tempo to the capital and fiscal policy. the fed is going to be moving from what are you going to do in reaction to the economy to what are you going to do in reaction to fiscal policy? where itmeeting about is. with a chart of inflation and unemployment as a are converging to where they said they would be. it is time to raise rates.
that is why you do not see arguments from the market. what do they do is donald trump gets infrastructure spending and tax cuts through and the economy heats up? that is an open question. i have one other chart i want to show you. monetary policy, even if the fed moves, very, very loose. monetary conditions index is moving slowly, real rates are negative. if the economy heats up, wall street will turn very fast to how many times will the fed raise rates in 2017. jonathan: this is through 2017, the federal reserve and the last couple of meetings has been, a federal reserve the move down to work the market's position, the market is dovish and a fed has to reconcile down. it will be different. how significant is it? michael: look at -- ready to bring up at the plot.
the market has moved on to the fad. when is the last time you saw that? the market thinks it is right 2017. rate increases in if the fed moves up and the market takes into account what might happen with fiscal policy, not a question of where is the fed leading to the market but where is the market-leading the fed. jonathan: how do they respond? i look forward to the news conference with chair janet yellen. jeff known as the bond king speaking at a presentation that we are currently getting to the point where further rises above 3%, which has a real impact on corporate bonds and junk bonds. how sensitive do you think that will be to that? michael: they are sensitive to it but also political implications. anything janet yellen says, but do not expect them to do a whole lot. it is moved up with the forecast
on what might happen absent fiscal policy. they cannot figure out and they do not know exactly what we will get from capitol hill. they do not want to talk about until it comes. expect janet yellen to say will .eact to policy as appropriate if somebody says inflation will rise, she will say the fed will taken into account. they do not want to get ahead of what politicians will do because only brings fire on them and they do not want to be criticized for meddling and policy and they were counteracted that. jonathan: michael mckee joining us, the market expect a rate hike, the first in 2016. we will get the decision. you know how it goes, the hike 25reserve will basis points, we expect. you get a news conference and they go to twitter. they will pull up the real donald trump. big questionsthe
is what will donald trump say on twitter? , formerus is bill daley chief of staff in the obama administration. thanks for being with us. let's pick up where jon left out. what has been historically relationship between the president and the president of the fed? and mr. trump, what might we expect here? bill: historically, the fed chairman and the white house is had a close relationship or not some that people think. of the fed has been most important. there is a challenge to the end the political system today. many people wanted the fed to be more responsive to them. what you see is a greater thing as michael said, that is fiscal policy may be going to drive our economy, not a central bankers who have to carry the load over the last couple of years without fiscal policy.
david: before that, talk about the bully pulpit. what we have seen from the president led is a willing to use the bully pulpit. what happens if the president tries to persuade by public admonition the chairman of the fed? bill: i do not think the chairman will listen to that and react to that. they have to react what happens on the heel. it may be-- uncomfortable but with a president that loves to tweet. he will not do anything in response to that. it is baked in at that thing he will go to what he wants to a couple is on the hill. used to: ben bernanke going front of congress and chastising them up what they had not done and how we can do less and you can do more. what i find interesting is how the composition of the said changes. do you think the president wants to put in a hawkish chair to
drive rate higher when inflation was relatively subdued? bill: i cannot. there is one thing about president-elect trump where we are in uncharted waters. fed a youon with the cannot underestimate a number of his allies on the heel want -- hill who was a more aggressive and directed direction for the president and the congress with the fed around fiscal policy which i personally believe is a dangerous situation. david: you have seen a number of transitions. what is the pattern, what is expected of a new president and what gets delivered? bill: you see all the markets, and as rotation that is off the charts. thatially on the timeline the markets think he will get on the 21st of january, all of these great things will be done. as we saw with other presidents, if it takes a while on the system of the hill. topite republican control
act and deliver the results that the market today seems to be baking in that everything that is good for the economy will happen and happen just the way the president-elect is saying will happen is a hyperbole. former whitealey, house chief of staff will be staying with us. an update on what is making cameras outside the business world. we turn to emma chandra. emma: president-elect donald trump will nominate former taking governor rick perry to be secretary of energy. trump said perry created a less decorateds than millions of jobs. perry unsuccessfully ran for the republican presidential nomination. a cease-fire in aleppo appears to be falling apart. activists say fighters have resumed bombing and the city. rebels say russia back syrian forces have been firing rockets
at it as a rebels as a rebels and civilians to safety in opposition areas have left without any passengers. a new survey finds one third of workers and the u.k. believe brexit will hurt their prospects. companies also found almost 1/5 the workers have started looking for new jobs because of the u.k.'s decision to leave the european union. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra, this is bloomberg. jonathan: thank you. about 15 minutes away from the fed decision. equities on a down. futures in today's session treading water. let's get you some movers to abigail doolittle. abigail: we got to european stocks trading lower after french pharmaceutical company is said to be in talks to buy a swiss biotech company. n is down after j and j
walked away from a bid and that ,annot come to terms on price among other terms and other sources are saying it puts pressure on actelion to start the dealer. we have illustrated company having its best a since october after consortium with morgan stanley and kkr, among others with a $5.5 billion bid and is set to set up a potential bidding war. the stock did finish on the 2007.at a high since basically the best day in nine years. in the u.s., company, shares are higher in the premarket after a beaten race quarter. guidance above consensus by as much as 20%, the fourth turning in a row. not surprising that the stock was up more than 60% on the year. david: thank you very much.
david: this is bloomberg. president-elect trump's cabinet is coming together. rick perry is considered friendly to the oil industry will be nominated as energy secretary. joining us now from washington is marty shanker, bloomberg senior executive for politics. what do you make of this? put it together with rex tillerson and mr. pruitt, quite a few people from the oil packed. it is striking.
the story that makes the point that the oil is dominating this cabinet, whether delivery strategy or coincidence, it is anybody's guess. many pretty amazing how people from the energy sector are going to run his government. david: mr. trump has a big meeting with a big tech companies at trump tower. he has brought them all in. why is he doing this? what is the agenda? doing it because he wants to show his listening to all people who have something to offer. it is striking that many of the people coming may have been part of the cabinet had in the election been different. but, they have great concerns about donald trump's use of technology, visas, immigration and they want to hear from him what his thoughts are. way it ise ever going, this president will have with caused -- a
direct relationship with caused than president obama did. marty: he is already showed that interventionist thinking through his twitter feed and if he sees something he does not like, it is clear he will go directly to the top and see what he can do. david: as he is already done. marty shanker, bloomberg editor. thank you for joining us from washington today pretty jonathan: rick perry will he abolish the energy department? now he is in charge of it. i am joking. for equities, what does the trump administration main? david spoke to us yesterday of harrison and associates. what does it mean for earnings? take a listen. david: it does not take much to be pro capital than the last administration. if you look at the cabinet choices, the antithesis of what we've seen in the last 18 years, and so, it should be conducive to earnings. i wouldn't be surprised if we do not better earnings next year.
just the: still with us is bill daley. --jonathan: still what this with us is bill daley. the ceo for wall street is seen as a positive thing if you to you, howvid, does a ceo meet d.c. reality? bill: it is the ultimate test. i listen to david, who is a friend, i just because somebody is a cabinet person, somehow growth is going to happen is unrealistic, knowing how difficult it is to move the ship of government. to do awaymay want with the department as you jokingly said. the government may not say he may want to do away with or change. you have to wait to hear the president's plan. the cabinet, the president, will test the theory that ceos by the virtue they were ceo has a magic sauce they can put into
government and therefore create what somebody thinks is missing. jonathan: why is it so much more business, aco runs a and goes to washington tries to make a decision, how much difficult? you could probably take over any company if you are a seo with aboard and make fundamental changes in a that company in a relatively short and oh in government, it is different. you going to the agencies because so much is directed by the policy of congress and the oversight and despite the fact the republicans control all of that, unless the president has some magic sauce himself, though republicans are just going to roll over, for the democrats for minute, and agree with everything and every limitation on them and their policies. they implement the policies and the laws that the president agrees to.
that is the difficult challenge for these people were used to going into a company like wilbur ross and taking over a company that is distressed and make fundamental changes very quickly . it is not the way it works. it does not mean it cannot be improved and that is their goal. to some off the book of rick perry has taken over energy, it probablyge everything, 20,000 or more employees who are implementing policies and regulations they have developed to do in a short period and they have to think in for your stretches, that is it. there is another election. david: you have the constraints of congress and bureaucracy. on the flipside, what could really affect the ceos? mr. tillerson has been successful. what could they added to government that a government professional would not have? bill: do you really just focus on the management of the agency
which is important. most of these people are managers. and then the policy is that is a whole different game. the secretary of state does not really run the management, they have deputy. rex tillerson, if you become secretary of state, he will have to deal with policy as the spokesman for the country that leads the free world. that is very different desperate hero behalf the company to get a deal done and much more complex than running a company. there's nobody in this but i am a hedge fund and i say look at the euphoria in the market. 20,000 and that is what i expect to come out of d.c. and what is the reality that you give to them? thinkthe speed that they of the change is not going to happen. you can criticize that and the president, i think, will and he will set the tone.
there is a process that has to work a it does take a long time. look at ronald reagan's period. disheartened when on the 21st of january the world has not changed and dollars well in all regulations are gone and all of the laws you think are bad have not been changed as a tax code has not been changed for the ability to have 50% tax rates. it will take time -- 15% tax rate. -- it will take time and it is a process that can be ugly. the euphoria and all markets is a little unrealistic, or a lot. a factor comes along, george bush came in and did not know 9/11 was going to come in. d.c. reality check from bill daley. great having you with us. thank you very much for coming up -- who will be cap to run the firm asked cohn joins the firm.
david: -- jonathan: this is "bloomberg daybreak." spoke in london and a bloomberg panel. take a listen to what he had to say. lloyd: one of the difficulties of the most recent year, the financial crisis, the aftermath, trauma that of the we went through is a almost became a negative to have a culture when people left the firm and were still gassing their tanks.
wanting to spend the rest of their working lives in public service and people who put out the idea that going to that public service, if that was a pejorative, i never felt a that way. and i think that pendulum happily has slowed by dutch flow by to recognize -- slowed by to recognize the one sacrifice it entails in how grateful we should be to those people and not the reverse. jonathan: as graduates head to d.c. with us stocks up in it opens up a leadership vacuum on wall street over the biggest financial institutions. for more on goldman, we are joined by michael moore who leads bloomberg's team and knows it inside out. gary cohn is gone, who steps up? michael: the reports are saying
it is david solomon, which would have been my guess as well. side whoharvey on one has been the cfo and came up and like lloyd and gary cohn did, the trading background. david solomon from the investment banking side of things. both have been there a shade under 20 years. since why garyer left a is a because he would not get the top job at goldman sachs? what he suggested, but what is the speculation among analysts with goldman sachs at the moment? certainly, a combination of things. i think the likelihood of him taking over in the very near term when it is fairly low and we have reported in the past he made not to be the most likely in the long-term to be the successor. that probably played some part. --t the bank michael moore
jonathan: michael moore joining us. lloyd blankfein probably happy that goldman sachs is not the most hated. and the sentiment he reflected. david: probably happy with stock prices. quite relevant. a happy run. david: we will keep watching this story as it develops. coming up -- inflation nation. alan greenspan on how republicans and democrats will tackle rising inflation under president-elect donald trump. that is next. this is bloomberg. ♪
are looking for signs of the fed of 2017. the danger of high-yield. year abovea u.s. 10 3% will punish the markets in 2017. filling his cabinet. donald trump announcing his governor rickt perry for secretary of energy will he get his way? that is what you need to know this hour. jonathan: the market hopes he will get his way with equities at an all-time high. 4 points,e down about a marginal move. treading water ahead of decision day. 25 basis points expected from the fed later. 2017 is the big unknown. switch out the board. yields have pushed back to 2014 highs. we are back at 244. cable rate steady at 126, david, head of an action packed day.
formerwe sat down with federal reserve chairman alan greenspan in an exclusive interview on the ee's of the federal reserve -- eve of the federal reserve meeting today. the risks of inflation and why dr. greenspan believes the fundamentals point in a dangerous direction, direction, may make a hard to direct. that gives us morning must watch. dr. greenspan: unnecessary condition for economic growth is the output per hour grows at a rate probably close to 2%. , where we have% been essentially for the past five years, moving scarcely at all with respect to output per hour. if you do not get output per hour growth, you will not get
the type of gdp growth, which the people are talking about who think we can grow our way out of it. unless you change the fact that we have this 9% average annual , thease entitlements democrats do not want to discuss it, the republicans who have been spending more and at a faster rate than democrats in the last 65 years. nobody wants to touch it. it is the third rail of american politics. if you're running for office and you mention it, you lose. that issue is addressed, i do not see how we got to the economy running because we are borrowing from-- abroad, $8 billion net total for
the system. you cannot keep doing that and i doubt very much if we are going to be able to do very much more borrowing from of art -- a broad and we do not have domestic savings because it is being crowded out by entitlements. where do you go from there? we willnice idea to say build our way out of it. good luck. david: where do you go from there? one of the biggest changes we saw since you came from washington is the leveraging option. at first but households and companies and since 2008, it seems like we put it on a company that was sheet. -- company balance sheet. is it a limit that we can leverage our society? dr. greenspan: the key issue is to what extent is it growing. the reason why i think stagflation is relevant is there
are two forces going on. what the money supply which has been growing at 6% annual rate very steadily earlier this year tilted up and we are now close to 9% annual rate. that is unnecessary but not a sufficient condition to get the inflation rate going quickly. but we are also finding the labor force is running out of extra workers. when wages are moving in the money supply is accelerating, those are critical issues. they are on the move at the evidence on see no the part of either republicans or the democrats or anybody else for that matter willing to come
to grips because is politically hot potato. david: doubles former federal reserve chairman alan greenspan. i to away a warning from the fed. we can see growth in the equity markets but not real fundamental, underlying growth but we're not investing in the increase productivity because we're spending money on entitlements. jonathan: i wonder if he would've hiked interest rates yesterday and moved on? hate to speculate, but i think the answer is, yes. his biggest concern is inflation ramping up. jonathan: a man to know something about an inflation rout. policiescalled trump's friendly yesterday and warning the 10 year treasury may climb to 3% yesterday. he said "there are further rises
above 3% which have a real impact on market liquidity and junk debt as well into your treasury in my view start to bring into question some of the aspects and of the housing market in particular." it is south of 2% right now. we are joined by subadra rajappa . forgive me. the bond market, 3% online and the sand. why is it so significant? subadra rajappa: for variety of reasons. and that to end at 290 far, if you look at where rates have gone in the last two or three weeks, 100 basis points move in yields. at current levels, it does not really impact of the mortgage. if we see a rise in yields, it is going to put the brakes on refinancing.
jonathan: doesn't the fed weight or sit -- wait or sit back and allow it? when does it become a concern? subadra rajappa: i think they will watch a variety of factors. it is not just about one thing. they look a international conditions, inflation expectations. there rise is that in inflation expectations, that will be an area of concern. going back to what chairman greenspan was saying, we're in an area where you cannot see continuity rise without a pickup in growth. stagflation -- that would point to stagflation. david:'s three-point all the magic number were you hurt the economy and it becomes restrictive? subadra rajappa: our rationale for why we have 29% is we look at fair value my you model --
model and trajectory and we use or 280.ue is about 270 given that contest, i find a deviate from current value significantly. it is definitely going to hurt things in mortgage. --athan: u.s. has several you have had several auctions. foreign money, you would assume, coming back. at one point on the curve to use evaluation? subadra rajappa: we are bearish on the 10 year, we think any selloff will be by the belly. we see it will steepen and the first quarter and it is going to remain in a play until the market star price and get more aggressive fed/ you might see more pressure on the front end of the curve.
how sensitive are the markets to what chair yellen says at the news conference today? whether she sends a dovish or hawkish signal? subadra rajappa: i doubt she will come out and some hawkish. of aate hike is something hawkish signal, in my opinion. i think we do not get much in the way of specifics although she is going to get more trump related questions. jonathan: you spoke to alan greenspan who thinks a bond bubble may be deflating. listen to this. mobile --pan: a bond a bond market bubble that is in the way of deflating and will affected the outlook quite significantly. this is different. we have has so few stagflation's
that we do not have enough models to look. jonathan: how he knows about bond routs s stock routes and where bubbles burst. how do you really defined a bond bubble? what does it really mean when you get an aggressive repricing as we have seen in treasuries in the safety of markets like that? subadra rajappa: we were talking about, fed treasury saying 150 and we saw 195 as adjusted for overseas qe. it was very clear that bonds were extremely sensitive to valuation. we are going back to where things are supposed to be. and some respects, where fair values we are approaching close to a fair value and now we have the ecb pulling back a little bit. there is more room for treasury yields to rise.
i do not think valuations are extreme. websense or matter move in the last two or three weeks or since the election. i do not think valuations are extreme. i see there is more room for it to rise. jonathan: great to have you with us. subadra rajappa. be sure to tune into a bloomberg for the rate hike that has been priced in at 100% since late in november in new york at 1:00 p.m. eastern. we began coverage as 6:00 p.m. in london. the decision at 2:00 p.m. eastern. at 3:45.p, a reaction coming up -- despite a post-brexit shot, ecb shares climbing up. a reclusive interview with hsbc worries howwhat most in this period of uncertainty. from new york with equities and all-time high, the dow on the seven-day winning streak and the
questions on the transition and what it means for business and trade. bloomberg francine lacqua second down with the douglas flint for an interview and asked what .orried how most about brexit -- him a most about brexit. mr. flint: you saw the markets reacted very well to events in 2016. one of the extraordinary features of the referendum in june was people went to bed that night with the markets, the condor tech. commentators, posters, vote makers predicting results and waking up in the morning and it was a different outcome. market volumes were six times normal, huge volatility and banking stocks predominately based in europe with the european bases suffered 20%-20 3% declines. -- 30% declines.
everything worked, everything is. all of the trades could be at the -- executed. you stand back after it is done and a system that has been capable of withstanding unexpectedompletely and a trust the system. that gives you some confidence that the system and aggregate is stronger than what it was. francine: what worries you about brexit? of anint: the period expectancy. is some clarity and direction with what the ambition of where we get to means you can discard some of the options a get on with prosecuting others to make sure for clients and staff that are impacted and they can begin to be business as usual. the sooner we can get to element of clarity. francine: what kind of clarity?
we know mark carney has been working on a buffer transition agreement. would that be the most helpful for banks? mr. flynt: it would be helpful to know if it is in the plan and in the sense if youink about the regulatory forms we have been through. aen reforms are finalized, two-year period of limitations so people can collect information and presented in a way that is required. that asfficult to think an the as changing the relations say on day, you can zero we are moving from that system a you can accommodate everything within your system. there has to be some of period of transition and again, in terms of the planning, if there a not a belief that will be transition, you have to plan for the fact it may not be. francine: and europe not had assurances from the bank of that theyat the case
have a transition refacing they are planning for? has clarifiedody that the everybody recognizes the importance there are arrangements on both sides of the equation are as possible. not so much about the financial system but a reflection of our customers. if our customers find things awkward and ugly, that will affect the economy. to make sure it is as smooth as possible and one ways is some element of systematization. francine: what did the the government needs to do? give assurances to eu workers they could stay in the u.k.? mr. flint: that is something that has been talked about. that would be a good step. the question of when do you finalize your negotiating position and all of the factors you want to take an accountable for you lay them down? i agree you do not do them
piecemeal. you work on what the underlying framework will be an something you could talk about. francine: are you moving some of your workers abroad? flint: we are planning for contingency. we bought a big french bank in 2000, which has given us more option alateen that meant -- options than others. we have the opportunity if we need to take it. arrangementsg require us to have more of a base in europe am a we can transfer some of our people in london to paris and back to paris because we all -- we operate the training rooms as a pair. many people in london came from france. it is an adjustment. david: an exclusive interview with hsbc chairman douglas flint . time for other stories. here is emma chandra with your business flash for emma: uber
-- volvo are testing driving drive was cars to the west coast. they have tried half a dozen cars in pittsburgh. and they intend to implement and san francisco. visit is talking that this is talking to other studios about joining in service according to people familiar with the situation. buyets customers by an -- and stock films. disney is trying to boost the appeal. the ecb has rich dress -- rejected a request to extend a 5 billion increase into january. that is a possibility the bank may need a government bailout. they have until the end of the year to find private investors for reorganization plans. the bank is trying to dispose of $30 billion in bad loans and that your bloomberg business flash. this is bloomberg.
david: this is bloomberg. it has been a full year since the federal reserve again left off. there's been a lot of talk about normalization but not a lot of action. janet yellen and her central-bank are on the brink of increasing rates again. let's look at the chart that make it a near certainty in "the numbers do not like." the markets are pricing in a 100% chance that they'll said it will rate -- hike rates. the orange line indicates the odds of a quarter hike, the blue
line is almost 10% and that's for 50 basis point rate. that adds up to 100% for you the fed stresses data dependency and the economic data point in the same direction, not a rate hike up. topping estimates at the highest rate in two years. that's the orange light, it has been soaring since the trump , s&pion and the white line 500, has been trading closely. one of the fed's to mandates is inflation. , horizontalellow line. you can see there are getting close to that goal and with the cleveland median, the blue and orange, a little bit above 2%. it gives the fed room to raise rates if it decides to tap the brakes on inflation. the markets are expecting more rates in the future. look at the 10 year, the market's expectation.
they are both jumping again particularly after the truck election. in addition, the other mandate is full employment. the white line shows the unemployment rate for people aged 35-44. the orange line is the prime age growth -- wage growth. .oth are trending higher finally, today we will learn not only what the fed does now but what is expectations are for the future. the famous dot plot. a time of the last list a meeting in september and more convergence between what fed officials see and what the market anticipates. and we will also be tracking the and tiednomic forecast to the characterization of the market. be sure to follow bloomberg chart starting at 1:00 p.m. with full coverage of the fed decision. as you sample for, it is the case of the fed -- now it looks
like the reverse pretty jonathan: the fed a may not have to do anything about 25 basis points. bloomberg intelligence told me maybe some projections is not worth the paper it is written on given how uncertain 2017 is pretty steven englander on the dollar ahead of the nest documents rate hike. we count you down to the fed decision. futures are negative. shredding watcher pulse of the board. the bond market, we look like this. -- shredding water, cross of the board. this is bloomberg. ♪
i'm jonathan ferro alongside david weston. alix steel's on assignment today. reserve might get one later. to 24 as weket is trade on the u.s. tenure. a 115llar-yen reclaims handle as we count you down to the fed. david: here's what you need to know at this hour. decision day. the federal reserve gets ready to raise rates for the first time this year as the dow flirts with 20,000. investors looking for signs from janet yellen as to the 2017 rate hike path. dealer once a 10 year treasury yield will plunge the markets next year. filling his cabinet. donald trump announces his plans to name former governor rick perry as his energy secretary. what his appointments tell us
about donald trump slightly policy and will he get his way. that is what you need to know at this hour. joining us now to look ahead at today's fed decision from washington is michael mckee, bloomberg's national economics and policy correspondent. repeatedly it is likely there will be a 25 basis points increase. talk about the news conference and how important is and what are her challenges. the expectations are sort of a hawkish tilt. michael: the expectations are for a bit of a hawkish tilt because the economy itself has gotten a lot better in recent weeks. we have seen gdp growth move up and we have unemployment at 4.6%. inflation is moving higher and now you're going to have additionally higher energy prices to boost that further. supplies if the dot plot went up today a little bit. the outstanding question is how
does the fed react to incoming fiscal policy? for the first time in years, we are anticipating some sort of action in washington to boost the economy. it is coming not at a time when the economy is weak as he normally get, but at a time when the economy is reasonably strong. therefore, is that going to boost inflation? what does the fed think of that as a possibility? what is your reaction? do you get ahead of inflation coming or do you wait until you see the the whites of inflation's eyes before you move? it's a question she may not be prepared to answer. david: she has to decide how she pitches this ball. you follow the fed for awful long time. give us a sense of the upside and a downside for her. if she is to dovish, there's a risk that she could encourage a and if she is too hawkish, it encourages a break up too fast. michael: what she will probably do is talk about the economy we have.
we do not know what's going to come with fiscal policy. she will say based on current conditions this is what we think is going to happen. couple of rate increases are going to be appropriate in 2017 because the economy is stronger, jobs have been created at a healthy pace, and we are starting to see wages rise, so inflation maybe on the horizon. comfort fiscal policy, she might play it straight down the middle and save the fed will react as appropriate rather than try to make an enemy on capitol hill or in the new incoming administration. rather than try to signal something to the markets that may or may not happen. david: put yourself in someone else's shoes and that is donald trump's. as he is playing at his transition team, what would you like to see coming out of the fed today? michael: that's an interesting question because he has been on both sides of the issue. he has criticized janet yellen for keeping rates too low for too long come up but he is a real estate guy and he likes low
interest rates. i'm sure the business people he appointed to his cabinet like low interest rates to stimulate growth in corporate spending. janet yellen has had a dovish bent. she believes fixing unemployment is a and important thing for the fed to do. she may be in the crosshairs of a trump white house no matter what she does. david: michael mckee, thank you so much. be sure to watch our special coverage of the highly anticipated fed decision starting at 1:00 p.m. in new york eastern time on bloomberg television and on radio. jonathan: how does it work? president elect donald trump meeting at 10:00 then he goes on twitter and breaks out of a meeting and it sends out his thoughts. is that how it works? david: do you tweak the cac 40 the tech or do- you tweak the fed? jonathan: the dollar this
morning is a little bit softer. the dollar index down by 2/10 of 1%, but still above the 100 handle as we await the central bank decision later. joining us now is stephen engle if it -- stephen englander. of last meeting i can think where the dollar index was hugging 100 and fed chair janet yellen came out and went back. what is going to be different this time around? stephen: you also have to remember the context. at that time, the dollar had been nonstop rising since the middle of 2014. the fed was really scared at that point that there would be an enormous damage. that was the fastest pace of dollar strength we had seen in 40 or 50 years. with that experience, the reality is it did not do that much damage to the u.s. economy. the fed is a little bit calmer about dollar strength. the other part is in so far that
it is being driven by expectations of fiscal policy. there is not very much they can do about it. they can't ignore the risk of fiscal. it's not like 2015 where you can say you guys have it wrong and the monetary policy will be easier. it's now out of their hands. david: do they take into account the possible effects of the dollar at all? stephen: i think that they will. , what wed perspective have seen over the last month and a half is kind of inconvenient that the rates are .p, the dollar is up very fast there is not much hope that we are going to get fiscal stimulus until the second half of next year, maybe even longer. i think that there is a chance that we have a pothole in the economy next year because of the tightening. i think it will allude to that
and balance that by saying, look, if it turns out that we do fiscal or very strong fiscal at this stage of the cycle, it's going to affect the path that we follow. jonathan: the situation over the last couple of years looks a little something like this. the federal reserve with expectations appear, the market down here. the fed will just go bang bang bang. now it's the market coming up toward the fed. why is that significant and how does it develop from here? stephen: i'm not sure it's that significant. the event that happened was basically a victory that no one anticipated. the market is probably 60-40 thinking that there is going to be 60% to dots and maybe slightly lower at three dots. from a market perspective, that makes a very big difference. when we get to dots, i think the rally we have seen over the last
couple days. the fed may say because the economy has a good head of steam. with fiscal, you're going to do even more. i think the 2017. are very important, but it's a question of how confident the fed is about the economy and whether they say, look, and three months we will know a lot more. why get into trouble in december when we can project with more information in march? david: this doesn't happen in a vacuum. you have to think about things like the ecb and bank of england and bank of japan. whether they raise to were three or four times next year, it is clear they're going to be raising. how does this affect things like the relationship to the euro into th and to the end? yen? stephen: i think the bank of japan is lighting candles every
day for good luck. they really don't have a much room to maneuver and i think they are going to be pretty passive. it would take a lot on the u.s. bond market to really knock them ff with the 10 year at zero. the ecb is more complicated. it's the flip side of the fed. the euro has gone from 138 to 105. it's i like the european economy is booming. i think they would be indication if they said there were three to four hikes and u.s. bond yields backed up. i think that would do more damage certainly to europe than the weaker euro would do any good. jonathan: great to have you with us. idea of president mario draghi and the governor sitting around lighting candles with headlines across the bloomberg. david: i wonder if they are scented candles. now to get headlines outside the
business world with emma chandra. president elect donald trump has picked former texas governor rick perry to head the agency he wants promise to shut down. that is when he was running for the 2020 presence of nomination. rick perry said he would close the energy department. trump said he preached a business environment that helped lower energy prices in texas. a cease-fire and aleppo has collapsed and that is threatening plans to evacuate rebel fighters and tens of thousands of civilians were trapped there. fighting has resumed in the last few rebel held positions and aleppo. russian backed syrian forces have been pounding them with rocket fire. not says supply cuts will rebalance the global oil market until the second half of next year. the cartel is try to end a three-year glut. it's forecast are more pessimistic than the ones published yesterday.
global news story for hours a day powered by more than 26 journalists and analysts in more than 120 countries, i am emma chandra. jonathan: this is bloomberg . we are an hour and 20 minutes away from the cash open. let's get you some movers. let's take you to abigail doolittle. abigail: in the premarket, we have shares of ford and gm trading lower. an investor in china says they will raise the stal sales tax to curb the incentive that has helped the auto industry. one in hong kong saying this is a big disappointment for investors to shares of qualcomm trading lower. and analyst is saying that the consumer picture: looks negative with the exception of the u.s. receive 99% of their revenues from outside of the u.s., so it makes sense.
as for valuation, shares are trading at a discount to peers on a forward basis. to rod halls point on valuation, the stock is up nearly 40%. nvidia is on a stock tear. it is higher today on the premarket on an upgrade over at ever court isi. they see a to revenue grown by more than 50% and they see 20% upside for the shares of qualcomm -- excuse me, nvidia. david: there is some news coming out of trump tower. the president-elect has announced elon musk of tesla will be joining the strategic and policy forum. this is with tech giants including google, facebook, and other tech giants. elon musk is pretty well known in the tech business.
jonathan: breaking news coming from goldman sachs. sachs naming solomon schwartz as the president and co-ceo of the firm. this is after gary cohen steps aside. goldman to name solomon schwartz to succeed gary cohen. the names are confirmed by goldman sachs themselves. david: it does speak to the strength of their bench. they don't miss a beat.
they have these departures and they write themselves. schwartz joined the firm back in 1977 and became the cfo back in 2013. solomon is the cohead of investment banking in july 2006. what interests me now is that gary cohen moves and for a lot of people he was in line for the throne. how does it develop with these two people now? what happens when widely fine finally steps aside? david: this is not the first time that had dual heads of the company. jonathan: gary being one of them. the premarket this morning down ahead of the open. it is hard to draw the lines between the news we have had this morning and the premarket move itself. largely expected to have these two names join the top of the firm under lloyd blankfein himself to replace gary count as he heads down toward d.c. david: we are heading back to
stephen engle under. this shakeup at goldman. does this affect your business at all? know, i'm the least qualified person to answer that question. david: fair enough. woods go back to a discussion i had yesterday with alan greenspan. facted him whether in china was a currency manipulator. yes, suren effect, they are currency manipulator, but everybody is and it just doesn't matter anymore. everyone is in the market affecting fx. we will play little bit for this for you stephen. >> everyone is manipulated currencies. that's the problem. we are all culprits. but it is a zero-sum game. i don't know how to answer that question because it used to be a
meaningful question 15 years ago, but i don't think it's a significant issue anymore. david: one of the things the president elect has talked about this possibly name china a currency manipulative. dr. greenspan says it just doesn't matter anymore given the way markets work. is that consistent with your experience in the marketplace? stephen: not really. i think it's an illusion to think there were good old days manipulate could currencies of people do not pay attention to what was going on. difference one big is that here we are in the united states, but the u.s. is far more cognizant of its impact globally in the global impact on the u.s. and the role that global financial conditions play. they are more aware of the currency. trump. with respect to his agenda is to put
boots on the ground and americans to work in factories in the midwest. the best way to do that is a very open question. david: thanks so much. that is citi's stephen engle ander. jonathan: we just had breaking news that goldman sachs have confirmed solomon and schwartz as co-coo. let's bring in michael moore from london, a man who knows his company inside and out. the news conference just a moment ago. they have named solomon and co-cotz president and os. let's head over to michael moore now who can i assume now hear me. the significance of this -- walk us through it. michael: sure. goldman historically has liked to have a copresident.
gary was a bit of an exception being alone in that role. from thesomeone investment banking side and someone with a trading background. these guys are going to be running the firm on a day-to-day basis. the publicviously face of the firm, but gary did quite a bit in terms of running it day-to-day. and davidere harvey solomon will step in. jonathan: david weston says this is quite a bench to step in for gary cohn. who becomes the next lloyd blankfein out of these two? is that what it comes down to? michael: i think certainly many people will see it as them trying out for the job, perhaps competing against each other. i do not think it rules out potential of the candidates besides these two, but it would certainly put them in place to be the front runners for that job. david: one of the big challenges when a succession happens like this is you have the top dog still there in lloyd blankfein.
you want to make your impression on the firm. you cannot fear too much from where it has been because you still have lloyd in charge, but what have you done to make your impression on the firm? do we have any sense of what either of these individuals might do to take it in a somewhat different direction? michael: i don't think you will see them move in a majorly different direction. harvey has been the cfo the last few years. a big part of his effort has been boosting the firm on the capital front and also cutting cost. i think you will see that continue, especially if the environment remains as sluggish at it has been. david solomon has worked within investment banking to kind of bridge the gap between investment banking and trading. that's to try to get some of those follow on revenues from some of these deals. i think you will see perhaps more of the different divisions
within goldman trying to work together, but i do not think you will see a sea change, especially with lloyd remaining i se as ceo. jonathan: michael moore, thank you very much. the vacuum that was created at goldman sachs because president-elect donald trump had selected gary cohn to join him. he is meeting with ceos, joining the strategic and policy forum. isning us now from d.c. bloomberg's senior executive editor for government and politics. here in new york is megan murphy. great to have you on the program with us. let's begin with you and talk as what we have learned through this morning. it is like the all-star see sweet heading down to d.c. >> yeah, we have rick perry, who is not exactly a washington insider. he is now going to take over the energy department.
i assume you will remember that name in the weeks and months to come. it is a cabinet that is being dominated by energy. that is a pretty interesting phenomena that we have chronicled in a story this morning. a cabinet dominant by energy and a live it later a conversation dominant biotech companies. is it pr when the president summons these guys before him and they will preannounce what they will do for the country? megan: i think we seeing him very much fill his cabinet in a process in the way he very much conducted his campaign. he is surprising a lot of people with an at the names he has picked. we have some of the biggest names in that business. what we will be talking about today and focusing on the something that's very important for him -- his plan to build jobs, his plans to restore manufacturing, and where he
plans to take the country in terms of policy and whether or not this is feasible and terms of whether he will be able to jumpstart economic growth. overtime we are seeing the shift and what hiss actual plan for making america great is going to be. david: is there any sense of what that is going to be? rick perry is the department of energy head and we often don't understand what that job is. where is that economic thinking going to come from? megan: it's usually important. the last energy secretary spent a term of this amount of time dealing with the iran deal. when you think about the heft in policy and the amount of time spent dealing with very serious issues in terms of dealing with international and doing that , when you look at where we are going to go in terms of energy policy, it's very clear terms of what he wants to do in terms of really reshaping and opening this up. they have been very clear that they view that as fundamental to
their jumpstarting growth plan to strip back regulation and put more jobs into industry. i think what we're seeing now is where he is getting his thinking from his people who have an entirely different view of the country and have an entirely different perspective an entirely different viewpoint. that is what we have seen with rex tillerson for secretary of state. we have a cabinet chock-full of executives. what they will do on the diplomatic level is entirely in question. jonathan: marty, walk us through that. will it be for the ceo model to work down and d.c.? marty: as we all know, ceos are able to say do this and it gets done the next day. government does not work that way. i think it's going to take a certain temperament to understand that things happen in a methodical way in d.c.. even though donald trump wants to shake things up, it's going to take quite a while to get things done. jonathan: marty, thank you for
joining us. us from d.c. and megan murphy from bloomberg businessweek. ahead of the federal reserve decision today, we're breaking down retail sales and more on that breaking story of the goldman sachs succession plan. mike mayo will be joining us shortly. a seven-day winning streak on the dow, an all-time high and staring down 20,000 points. features -15 points, down a marginal 10th of 1%. the bond market big throughout much of the session. yields are up by three basis points. 244 on the u.s. 10 year. from new york, this is bloomberg. ♪
in the bond market, treasury d, the yield is down two basis points. handle.ar-yen is at 114 a weaker dollar ahead of that said decision. the retail sales number drops and comes with the downside surprise at 0.14% for the month of november. the meeting estimate was 0.3%. sales, auto, and gas coming in at 0.2%. for the previous month, dan ward revisions as well -- downward revisions as well. the dollar rolling over a little bit, down by a quarter of 1% on the dollar index. a big downside surprise on the margin across the board. david: it came in lower than what estimates appear to be. looking at the estimates further ra.la
welcome to both of you. as jonathan just reported, less than the estimates were, a bit disappointed. were you surprised? >> we've seen such robust consumption that it was natural we would get a small step downward. the consumer is still a huge engine powering this economy forward. this is probably going to continue. we are all helping business investment will pick up some of the flat, but it's really all about the consumer. a point isn't bad. percent growthto on the quarter as a whole. david: we will talk about that later. what does that tell you about the holidays? >> these numbers are subject to revision. what is more meaningful is that we have seen really big upside surprises were sentiment,
business sentiment. those are surprises we've not seen in a long time and that's a just people are feeling better and are more willing to spend income. jonathan: what about the moves in ppi that we have seen the last couple of months in the united states and globally? in the united kingdom, it's a weak sterling story. the united states, and upside surprise for ppi here in the u.s. how significant is that for you? lara: we are seeing all these inflation number starting to rise. but will be important is to see whether or not wages keep track of that. we've all been looking at this week inflation and it has made people feel like their income is going really for. if we did see we inflation normalize, we will have to see wage gains on track as well to see the consumer pushing forward on all cylinders. david: we are talking about consumer spending, which is all-important, but not all consumer spending goes in to retail. you have restaurants and leisure
and things like that. what is going on with the shift of the consumer dollar? we are seeing less dollars going into retail sales and brick-and-mortar stores and more online spending, which is actually measured with a little bit of a lag. i think more amazon spending, more services spending, we are a service economy. sayhe ppi, i just want to that what i'm watching is the chinese ppi. we are no longer in deflation and the chinese ppi actually leaves a lot of ppi and other advanced economies including our own. jonathan: what is the fed looking at today? point rise in inflation compensation and they are probably happy about that because we have been really below target with very low and concerning inflation expectations for the last several years. that's a positive development. i think they are going to make very few changes to this statement. i think they're going to raise
rates for the second time the cycle, but really there is not enough information about this perspective to make big dramatic changes today. lara: that is really the critical issue. we have seen stocks make a big rally and markets embrace uncertainty, usually negative. they cannot seem to get enough uncertainty. there's like this help rally where i think what the fed is when to do is groundless back to earth. they're going to stay gradual and cautious. they're going to want to see the actual economic data turn and i can take a lot longer the markets price in. jonathan: you say the cycle. laura: after year, it's slow, but we are predicting more in 2017 and even more in 2018. the cycle to be turning. jonathan: doesn't feel like much of a cycle. lara: it really doesn't. [laughter] jonathan: if you like they're going to start another one at 25 basis point and see what happens
. lara: i think they are all in do no harm mode. that is really going to stay. they are behind a ball and they want to make sure the economy gets more than just traction. they want to make sure it is robust on all cylinders. it's a low rate environment and it will stay that way for quite some time. jonathan: thank you. we appreciate your time. and laura, be sure to watch our special coverage of the highly anticipated rate hike you have waited all year for. it starts at 1:00 p.m. eastern time here on bloomberg tv and bloomberg radio. deanng things off is the of the claudia business school. back to the breaking news this hour. goldman sachs has promoted schwartz and solomon to copresidents to replace gary cohn. we are joined by the banking analyst mike mayo. benchid says, quite a
over at goldman sachs. at the same time, it is steady and she goes, isn't it? mike: goldman sachs is making this move from a position of strength. decadeantra earlier this was live to fight another day. goldman's revenues haven't grown much this decade, but they have preserved the franchise. since 1869 when goldman was founded, the key to the franchise was serving clients well. s, one whove two coo' has done investment banking and another who has done a lot for clients in the trading side in harvey schwartz, who has for the last three years been co-cfo. david: it really matters when you take over. looking at their point of view, is this a great time to take over? that come off a pretty lean per iod or is it a bad time where it's doing so well? look at how the stock is done
since donald trump has gotten elected. mike: i think this is a fantastic time to become the chief operating officer of goldman sachs group. goldman sachs underperformed what they produced blac last decade and we were giving them a lot of heat. they repositioned more. so far this decade, while the revenues have not grown, the pretax margin improved by one third. shares declined by 1/5 come a but they have done whatever they could in this tough revenue market. we have increased our estimates since the election by over 15% on goldman sachs and we think the stock price has an all-time high in the next 16 months. jonathan: how will investors react to this news? you have increased across the board, specifically for goldman. is it just these guys stepping up who get to enjoy goldman sachs's success? mike: it does not change the
approach of goldman sachs. gary cohn is a heavy hitter. gary leaving is in isolation not good news. , but goldman sachs has one of thereepest bench o out . it is a natural flow of activity. goldman has had less change at the top levels this decade than in prior periods. this is a natural evolution at goldman. david: it's a great time to step in, but at the same time, people of this ilk want to put their own imprimatur on this. they want to be more than caretakers. what is the likely move that these people will consider to put their own stamp on goldman? mike: the key now since goldman spent so much efforts to preserve the franchise with the last man standing bunker mentality. that means just preserving the franchise. he come out with the skies are clear again. the key here is market share
gains. are they going to have disproportionate market share gains for having preserved the franchise for the last 5-6 years? jonathan: the market moves we have seen over the last month, we need to ask, they have been phenomenal. it has been almost before it could be percent moves at goldman and jpmorgan could -- it has been almost euphoric. 20% moves at goldman and jpmorgan. mike: we were the most bullish on banks in 20 years. since then, banks as a group have increased by about 50%. it has been a nice move in aggregate. a lot of this is catch up. what have bank stocks done since the end of 2000? they had been about flat. you had 16 lost years of bank stock performance, so between the catch up in a really incredible testaments that you had, rates were never going higher. the was never going to be growth again. we never expected this many
catalysts. you could have higher rates and faster gdp growth and could have expectations for better cap markets. we do not think we would get all the catalyst at the same time we've got here. jonathan: in the last years, some people would say 10 years was stolen before the financial crisis. you can make comparisons either way. the revenue environment has got to improve. at the moment, it hasn't globally. what is that going to happen? mike: we think that happens over the next year or two for banks. you have accelerating revenue growth that banks and that is partly because banks have absorbed all the body blows. we have lower rates, additional liquidity, the liquidating portfolios running off. that is already bacon. underlying -- more the underlying growth moves to the top line and that is before but trump bump. david: wells fargo is back in the news again with these insurance policies that were
issued. where's the bottom for wells fargo because it seems like they have not found it yet? mike: there's bottom for the stock in this bottom for bad news. we consider the second act of a three act play. the first act was a terrible cross-selling fiasco, the fake accounts that wells fargo had. they pay the price for that in many ways. this is now the second act where wells fargo, with the help of others, takes out the trash. you look at every nothing craney in if you see something, you bring it up to the open. in the third act, they're finished with their internal review. maybe they make changes at the board and then it's the next stage. david: this is a bank that has been very largely consumer facing. when the allegations come out such as they were selling insurance policies to hispanics who couldn't even understand the language, cannot do long-term damage to the brand? mike: they have already had damaged to the brand from the
cross-selling incidents with over 5000 employees having fake account openings. that is really bad. allegations, they're still allegations and we will see where that goes. if it is true, it is certainly bad news. in the scheme of a company as large as wells fargo, people need to be held accountable. i don't think it's life-threatening for wells fargo. bottleie is out of the for their perception issues with customers. jonathan: a quick word on the federal reserve a little bit later. a steeper yield curve has been significant for investors. how do you put that in your models? basisit is an aggregate move upward that is a 10% benefit for banks. brexit,ags it, we're -- we were talking to investors and they were saying we're not having any interest rate increases for years. we heard people say not in the
next five years will we have interest rate increases. .ere we are if we get a 25 basis point move today and a few more next year, that is some oxygen for the banks. it helps profits, but it motivates additional risk taking. jonathan: great have you on the program. thank you for joining us. mike mayo on the banks. and the news we have had so far this morning, we have breaking news from goldman sachs. still had on this program, a closer look at the european economy from former fed chair alan greenspan. thus you think the euro concert -- does he think the euro can survive? this is bloomberg. ♪
emma: this is "bloomberg daybreak." i emma chandra here in the hewlett-packard enterprise greater. coming up in the next half hour, global strategic it fires are -- ribas.r for pair o david: this is bloomberg and i'm david weston. the issues faced by the eurozone have certainly not gone away. chairmanderal reserve alan greenspan told us how concerned he is about the stability of the euro given the rage the pressures that it faces . alan: there's an irreconcilable issue that we do not pick is going to get resolved. i'm very much concerned but not at a euro crisis because there institution that
can backup the euro if it ever gets into trouble. david: even as we speak right now, the yield difference between italian bonds and germany is substantial and growing. does that really indicate the sort of tension that there is within the eurozone and really pose a serious existential threat to the euro? alan: the at is the major issue -- that is the major issue. one of the things i watch every morning is the spread of what we call target two. target two is the european central bank method by which the , all of themnks are lending to each. it's a zero-sum game.
what has developed is the bundesbank has owned over 600 billion euros to the rest of europe to spain and italy being the two that are continually matching. the bundesbank assets are going and spain and italy liabilities are matching up. that is a situation which cannot persist indefinitely. it is going to give. i think the real danger is that italy may be in more trouble than we think. renzi had the right solutions. he got voted down. this is a worldwide phenomenon. we have this international shift, which is not only brexit,
but it's go scotland. there were considerable discussions about northern ireland. spain,u get to italy, which is always in a state of turmoil, and the grandchild of all them, greece. greece got into the euro illegally in the sense that they fudged their numbers and was admitted. instead of getting them out of their, they are still there. is unstable. david: that was part of our exclusive interview with former federal reserve chairman alan greenspan. time now for other stories making headlines at this hour. here's an with their bloomberg business flash. emma: alaska air has closed its $2.6 billion acquisition of surging america.
there will be no decision as to whether they will keep the virgin america brand. onere are talks to buy acteli after johnson & johnson moved away. j&j says it was not able to come up with a deal that would create adequate value for shareholders. at about $21alued billion. google and volvo are expanding their testing of driverless cars for the west coast. the company's have been trying out half a dozen cars in pittsburgh. they will now to play what they say is a significant large used vehicle and second scare. that is your bloomberg business flash. this is bloomberg. david: as fear and u.s. equity markets drop, investment managers are getting in. we will have a chart explaining that. this is bloomberg. ♪
jonathan: this is "bloomberg daybreak." live from new york city, i'm jonathan ferro. coming up, u.s. november industrial production at 9:15 a.m. eastern time. the big one is the federal reserve rate decision at 2:00 p.m. eastern time. it's a decision that the market has already made its mind up that the fed has argument. already made. david: time now for battle of the charts. dani burger is facing mark burto barton. mark: i want to ask the question. in u.k.eeing a squeeze
realpage p data today showed average earnings excluding bonuses rose 2.6% in the three months to october. that is the strongest gain since august of last year. that means real pay has stayed at 1.7% in the three months through october. real pay is represented by the blue line, which as you can see here, it is outpacing inflation for the last two years. however yesterday, inflation data showing 1.2% increase last month. it is the strongest and over two years. the economist that we have surveyed expects that dynamic to -- next yeart year as inflation picks up. what is interesting is 2010 to 2014 when inflation was outperforming realpage. when you look at the decade as a whole, inflation has averaged 2% this decade. real pay has averaged 1.8%. we still have not made back all
the losses from the beginning of the decade. it leads us up nicely until tomorrow's u.k. rate decision. expect nothing. more interesting is what the economists say. they expect the next rate move to be a hike. that is versus 10% just two months ago. #btv 87.t is g david: that also means squeezing the pocketbook of the average person in britain. dani: bring it back over to the us. with the dow about to hit 20 k, i want to look at how euphoric investors are. there is some hedging going on as we are hitting new highs, but that is not the case for we have three lines to prove it to you. the blue line is exposure for active managers. it's at the highest since 2013. the bottom line is call volume, people betting that the market is going to go out.
it is even higher. the last line is the gauge of people getting downside protection. people are not concerned. they're not buying downside protection. they are betting it's going to go out and buy more u.s. stocks . david: dani burger is approving so much that you're almost up to mark barton. mark, i'm going to vote for you today. congratulations to you, mark barton. jonathan: i think it was the late 1920's whether it was real or nominal and he went with nominal. my boxer going with the -- my bucks are going with real. next we will talk to the pimco strategic advisor on rates. this is bloomberg. ♪
a.l. jonathan ferro. for our viewers, we are counting down to a cash open in new york markets, future stable throughout the session so far. we are down about 18, 19 points on the dow at all-time highs. david: what you need to know. , the federal reserve gets ready to raise rates for the first time in a year. flirts with 20,000. signals from janet yellen about the 2017 rate hike. warning of a 10 year treasury yield above 3% would punish the markets next year. and goldman sachs succession plan. the bank names solomon and theartz as coo's to fill vacuum left by gary cohn, as he takes his job in washington. abigail: we are looking at flex futures in the u.s.
the s&p 500 has traded in a four-point arrange overnight. it puts the down 20,000 excitement -- down 20,000 excitement on hold. perhaps longer than what some investors expected. a 10 year yield and we see bonds are rallying to some degree. forhave the 10 year down basis points, the biggest drop in about a week. perhaps the rate hike turns into event.e news finally, take a look at car related stocks. tradingmotors and ford lower as china is raising the sales tax on small cars to 7.5% to curb the big incentives. one analyst thinks is a big disappointment. hertz trading down on a management shakeup. the cl is being replaced. trader, is the top
saying i am excited about hertz with cathy ath the helm. the stock is down 50% this year. work.an: great federal reserve, you have not been able to say federal reserve and "certainty" with it but today's general. joining us as michael mckee, bloomberg's policy correspondent. it makes me nervous when people are so certain. pointeadline, a 25 basis rate hike, right? janet yellen said just to make up your day not to do it. [laughter] at this point, if they did not do it, it would mess up the markets. you would get a paper tantrum from that. the fed has wanted to raise rates and as they have the opportunity. it is too much not to take advantage of. they will move up to 50-75 basis point range.
what investors want to know is what they will do next and when and that will be hard for the fed to explain. jonathan: typically to do that, you look at projections and the dot plot and what they expect to come through and what they expect to do. listening to the policy makers, they have done this -- we do not know what is happening, we do not forecast. how do you read the tea leaves? michael: janet yellen will be saying this and she will say that the fed will react is appropriately. the market andt implied rates are, the first time in years, the market is where the fed is in 2017 going into this meeting. the economy is picking up and the inflation a little stronger. maybe a slight move up in the dots but based on today's economy and not what they are expecting for 2017.
that will be the ". since you do not know what kind of tax policies, fiscal impulse we will get, the fed cannot make projections and cannot tie interest rates to it. you can look at today's dot plot, but you do not want to invest in them. david: thank you. , comingmichael mckee from washington. for more on the fed, we bring in which -- rich clarida. andsince truman beat dewey held up the famous newspaper, have we had something is widely predicted to be true. let's assume it is right. what is janet yellen trying to do? rich: she will be playing a little dodgeball. michael mckee be asking her how conomics sit in.
i think she will be noncommittal. it is a fed that does not want to get ahead of fiscal and they want to react once it happens. reality in washington is doing major tax reform is complex and time-consuming. my best guess it we do not get a lot of stimulus next year. basicallyk she will try to leave her options open and she is good at that. jonathan: she is great at that. she will tell us to react to data as it comes in. i am not sure many has a firm handle. that has been blurred. : rich that is an -- rich: that's an absolute point. we are near full employment, fed does not like inflation. yellen sometimes say we need to reflate 2%, it is an average. the reaction function should come into play and she may try to dodge it today, but we will have to know how to react to the data. david: the markets announcing to
be looking through the fed into what donald trump's administration is likely to do. the markets are much more atoned than to what to janet yellen says today? rich: the eye is until november, the fed has been coming to the markets and is saying you are not going to lift off like you said. because of trump, as mike said, the markets are moving up to the dots. and i think of the fed has said it would like more fiscal stimulus. yes, she is in a better place and then september. jonathan: could we see a market they get ahead of the said next year? rich: yes. a real issue is the bond markets are very forward-looking. they will price in stimulus. the dollar is very forward-looking. you will get higher rates potentially on a stronger dollar in 2017 and not the same stimulus in 2018 and it can overshoot.
we are looking at the risk of an overshoot. turn to the will conversation with the former fed chairman, david. he talked about the bond market itself and ahead of the deflating of a bond bubble. dr. greenspan: we have a bond market bubble that is in the process of deflating. we have a way to go and it is going to effect the outlook quite significantly. this is different. stagflations, few we do not have enough models to go on to what to do. jonathan: on the bond market specifically, a bubble is deflating. just the rout. up.ds are back how does it play into the thinking of fomc? rich: rates are where they were a year ago. butg move in term of rates it is less than to one half on
than 2.5%r -- in less on the 10 year. the move has been sharp and a correction of the situation with concerns about china and we have had brands and trump and the political risk markets are repriced. speaking gundach yesterday talking about this imagined 3% i keep hearing. quoting him right now. , junkl have an impact debt and a 10 year treasury above 3% in his view brings with the question is some aspects of the stock market and housing market in particular. why 3% so significant? rich: i would not put a specific number. is tos have a it overshoot. look at the paper tantrum. the rumor the fed it made taper and that strengthen the dollar
and sloth economy. global market, you cannot rule out overshooting, but when you get it, the forces are powerful. jonathan: we have joked you will get the decision and then the tweet from donald trump. does he have a key role to play? over the next 18 months? is there,sation beyond that, the fed's chair term expires in 2018. how significant is that, rich? you can have complete composition. rich: two reasons. on the substance if your president trump appoints and the transition it self. as an observer, fed transition going to the 70's, it craves market volatility -- creates market volatility. the nextty about who
person will be with his or her policy will the as a whole committee is changing. we're focused on fiscal policy to and six months, it will be the next fed chair. jonathan: and how grow the markets can be. remember it was larry summers versus janet yellen. larry summers was a hawkish candidate. loop butd a feedback when the trump tower and the fed. as of the dollar gold of and as yields go up, it makes it more difficult perhaps for donald trump to a company some of the things he set out. rich: absolutely. we saw it in the 1980's. the analogy is not perfect. reagan inherited 10% unemployment and trump inherits 4%. andill move the dollar up that will feed into exports and inflation. jonathan: i will ask you the juvenile question. how many hikes next year?
rich: my best case would be 2. with upside risk on the stimulus side we get, i think 2 hikes make sense in terms of the economic outlook as planned out but some upside risk. john debate rich -- jonathan bainbridge clarida, great having greatathan: rich clarida, to have you with us. the decision will cross at 2:00 p.m. eastern time. for an update, let's cross over to emma chandra. good morning. most some a donald trump's outspoken critics will meet with a president-elect today. he will meet with leaders of the pageworld including larry and tim cook. rhetoric on immigration has sparked fears. formerill nominate governor rick perry for
secretary of energy. he said that perry created millions of jobs. he unsuccessfully ran for the 2014 public -- republican presidential nomination. theresa may said it is time for russia's president vladimir putin to say enough is enough in the city of aleppo. a says failure -- a cease-fire broke down today. continued.ked rebels the fighting has threatened plants to back away rebels and thousands of civilians. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am emma chandra. this is bloomberg. david? david: coming up -- a key data point of fed watches because it could be early inflation clues. the numbers will be out in a few minutes. leadership at goldman sachs. we will look at who is being groomed to succeed lloyd
david: this is bloomberg daybreak. raking the numbers out of the government. 0.4%ve production numbers, , the estimate was points 3% -- was 0.3%. breaking numbers out of government. last month's numbers were revised up. just a little bit disappointing after we had retail sales earlier. a little less than the forecast.
jonathan: thank you very much. industrial production and industrial production and retail sales but the crude market, all about supply. wti down about 1.5%. a big focus as the market shifts to u.s. crude stockpiles. joining us now is bill barrett. great to have you with us. talk to me about the stockpiles. everybody is focused on the middle east. the united states, supply seems to be going nowhere fast. bill: thank you for having me on. today is the day where the focus shifts from the middle east and opec and what is going on today. come outad a report last night, a big report of 4.7 million barrels. ons is put the market back 52. looking for a lot of support but the interesting thing is the always of the trading for expectations.
the expectations are for withdrawal of 1.5 million and now the window of what api was in the expectation of the eia that we could see a bill and that would be bullish. jonathan: what is the trade for you? bill: we remain intermediate it would be it could get to -- we need to see 5370 and $55. i will watch it very closely. turnure the market will higher and that is what i'm looking for. last tuesday's report showed the commitment of traders on the short side to manage money to drop 30%. i think that is another 30%-40% to get squeezed out of the market for the traders to be in the short position committed in october when the market was at the hides. there is still room. still short squeezing and i'm looking for 58 point 97.
i have standing about for the report. jonathan: the big debate is whether she'll will step up as opec -- she'll step up as opec stems back. shell will pick up with prices where they are now. online seen rigs come every single week for the past several months. essentially, it will turn into production. for white right now, -- for right now, opec, we are telling our people it is guilty until proven innocent. we have to wait to see data in january february. we could see it pick up in the u.s. we like the long side. we think there is a great selloff in the first quarter of next year. jonathan: bill baruch at cma. cop -- cme. coming up -- doing business under the trump administration.
david: i am david westin. onska airlines closed purchase of virgin america which will make it the fifth largest u.s. airline. you just has been following the story and joins us now with bradley tilden, the ceo of alaska airlines and he is speaking to bloomberg first. brad, let me go first. congratulations for you close it pretty much on time. tell us a strategically this means for alaska air.
why was it so important to have virgin america routes? virgin is fantastic. they're built an incredible company and a great network and an incredible team of people were passionate about what they do. that is generated a loyal group of customers. the network. alaska is strong and well stress in the state of alaska and washington and oregon and we combine that strength with virgin's strength in california and we will have an incredible presence along the west coast. we will have the largest market share of any airline that serves the west coast. iny: you get the routes california and across the country. but the culture of flying on version is a pretty unique thing when richard bresson started out, a notion that flying stinks , he does not use the word "stinks" and i will make a better experience. how do you meld the better experience?
alaska's very different. what have you decide about keeping the virgin brand? a is a fair point. alaska has been around 84 years and we have incredibly loyalty and loyalty programs and we lead the industry in all time and we leading customer service. alaska is great above version is also great. as you suggested, it is more disruptive and appeals to a younger demographic and a bit more flair. that is good. what i look at is to fantastic employee groups with 2 companies focused on customers and acting version will push alaska to be better. i think it will be a good thing for us. paying forn has been is brantford will you can team you the payments -- for its brand. will you continue the payments? bradley: it is a decision we will make and the future. it is the first day we will look
at the data and we will learn every thing about the virgin brand. we said we will make a decision in the near term. i think the first quarter in 2017. it is about what will work best for our network and customers. david: let's talk about the money. all of the airlines have benefit for reduce fuel costs and it seems to be turning around. fares have been coming down. what does it mean for your margin? you have been prided yourself are being on top with margins. bradley: it is a really good time for the airline industry. all of the consolidation has been good. the bankruptcies, in a way, have been good. we have fuel prices and economy in other things can happen to us. in general, the structure is better. the discipline is better and conditions will be better. at alaska, our job is to do the best we can to be safe and on time and offer our customers low
prices. , itever environment we have will be a good business environment, but whatever we have, i think the company will do well. this merger will strengthen what we have. has the airbuses. what will be the standard going forward? you have to pick one. do, it: what we will will take all process. do months in the question is we want to operate one fleet and moved to all boeing or continue with 2. you expect andas take time and make the decision as best we can. david: unabomber a lot to do this -- you have borrowed a lot to do this, do you have another deal on the horizon? do you want to go international with another deal? we will have our
hands more than four. our goal is to be the best we can for our customers. it gives us a shot to serve all of the traffic needs for anybody up and down the west coast. that is where our total focus is. ceo,ank that is alaska bradley tilden and cory johnson. jonathan: the opening bell is ne xt. the dow is points away from 20,000. market, we look like this on fed decision day. perhaps a 25 basis point hike. yields are lower. this is how we trade, from new york, this is bloomberg. ♪
will it happen today i had of the federal reserve decision? you hear the opening bell and new york. the cable rate is up 0.3%. a weaker dollar story in the g 10 . yields are lower by 4 basis points. bonds, the dollar is weaker in crude oil is over by 1.5%. 52.50 is how we trade. let's cross over to abigail doolittle. abigail: we are looking at basically a flat open for the u.s. a major averages. mixed, the nasdaq ever so slightly higher but the dow and as if modest declines putting the record highs on hold. it is actually on pace for record closing high, that is sort exciting. maybe worth wondering if the fed policy decision later today perhaps turns out to be the event to reverse of a rally we
have had out of the election. we will know soon. we have mixed readings and retail space after retail sales for the month of november disappointed. versus the estimate of 0.3% versus october. we are seeing this paul's in retail -- pause in retail activity including macy's, jcpenney's and not so much on amazon and even commerce. -- it commerce. in the month of november, sales may have been disappointing but americans spent $465 billion on $1500, nearlyals $1500 for every american out of there. a lot of shopping in november. jonathan: it was david westin, i promise you. thank you. last coupleover the of weeks, record after record with the dow possibly inching
towards 20,000. here is what some of our guests have been saying. animal fears is the best way to put it. next year, one of the thing we have not seen and is bull market for the last seven years is absolutely your form you on stocks. we have seen cap and relocation into stocks. if you apply the typical late year bull markets which is strong, you typically get about 20% return of a bull market. that caput next year's s and p at 2700. >> it does not take much from the last administration but if you look at the cabinet choices, this is the antithesis of what we have seen in the last eight years. it should be conducive to earnings growth. i would be surprised if we do not see better earnings next year. hypertension and
we are calling the tantrum, i can feel bullish again. >> this euphoria in all markets is a little unrealistic or maybe a lot unrealistic. jonathan: for more, we bring in krishna memani. we wrap it all with a man who knows d.c. very well as set the euphoria may be met with the d.c. reality, what are your thoughts? krishna memani: euphoria may be an overstatement. what we are dealing with is the fact that for the first time in the last five or 70 years, the chance of getting out of the slow growth morass we have been in. for his look of -- the fed is concerned, it is interesting the fed cannot really incorporate any of the things the trump administration has said it is going to do.
and therefore, the markets are pretty much on their own and the fed cannot say or do anything about it because and of their minds, it is pure speculation. we have to wait and see on what specifically they say. i do not expect much out of the fed today. ast the bank 20 set -- jonathan: 2017, the markets on their own, what kind of mind will it make up? beyond where the federal reserve positions itself with forecasts of rates? krishna memani: i think there is a real possibility. what we have is an economy that lack of growth momentum of going into 2017 west out trump related stimulus and things like that. there's a real possibility that we passed things in 2017 and markets react to that while the fed is waiting for the real growth to show up.
that is where the disconnect is. we may have the 10 year significantly higher because we expect significantly higher growth rates. the fed cannot incorporate all of that because the real growth may not come until 2018. is axpectation of growth good thing, but the fed behind the curve relative to the expectation is a bit of a problem. david: and the question of timing and how much will is there be, whether infrastructure spending. on the flipside, trade problems. as you look at the pricing in the market, are the markets setting themselves up for disappointment? krishna memani: the risks have certainly gone up. the growth outlook has improved and inflation expectations have improved. risks have gone up. specifically, potential for trade conflicts, disappointment in terms of the size of the
stimulus, disappointment in terms of what we can get past through congress and most importantly, the potential of the fed playing catch up because the growth outlook improves meaningfully and what they have set at the market up for in the front end is one or two tightening. and then we start pricing three or four in 2017 as as a potential of turning into a disaster. the base case is for things to work out and equities to do well. however, as you think about your allocation, incorporating higher level of risk is important as well. jonathan: how did you do that? how did you capture that story and express it in your portfolio? we had a guest who said he was uncomfortable, that is how bullish he felt. are you trimming or keeping the exposure? krishna memani: let's say you're neutral allocation is 50, if
you're neutral allocation is 50, there is an outlook calling for 65, not 80. that is what the difference is. the outlook is good, valuations are not stretched the valuations are reasonably high. going hog-tied, is not make sense. meaningfulhing to be for is implications of asset classes is not the same. equities have a lot of upside. credit, on the other hand, is relatively tight and does not have much upside and can go down quite meaningfully if all of this turns into a bit of a disappointment. allocating into global equities over here and overseas and sort of trimming back uncredited make sense. david: krishna memani, thank you. oppenheimer's chief investment officer. goldman sachs. changes at the top.
promoting chief on edge officer schwarz and solomon to copresidents to replace gary cohn. just last hour, we heard from an analyst michael mayo on his outlook for goldman. >> so far this decade, while the revenues have not grown, the pretest margin improved by one third, but they have done what ever they have. now we think revenue grow and we increase of the estimates over 50% of goldman sachs and we think. price has an all-time high over the next 6-12 months. a great time to take over. ourd: we are joined by correspondent. a regimehere is change, people tend to over predict or on to predict. given what you know, is it steady on course or will we see real changes? >> harvey schwartz has a
background in trading and david solomon, the cohead of investment. at goldman, you have these 2 competing or parallel forces of the trading business and investment banking, coming out of the crisis, trading has become a much smaller part of the firm with higher capital requirements as so there's been so thought goldman has entered new businesses. there's been fought trading would be less of a focus at the firm inside of the firm, inside of the sea suite. that tells us trading is just as important and they see investment banking as a close second. jonathan: if this was any other bank and they got a new number most readd not be the story on the bloomberg, why is it so significant? the change for the number 2? dakin: a good question.
people like to read about goldman sachs, that is for sure. for a long time, they have been the preeminent investment bank on wall street. there is a lot of interest there. there's also quite a bit of interest as it they were the last major investment bank to be private. there has always been interest in internal deliberations at that firm. people get paid a lot of money. when you get new people moved up even to the number two role, that opens up seats lower the power structure. that is what a reason why people are interested. jonathan: trying to work out who will take lloyd's job ultimately? dakin: we certainly are. [laughter] jonathan: who is in the lead? and what time horizon? who is for? dakin: people think maybe harvey schwartz is one step ahead,
david solomon it does not want to hear that and would not want to hear me say that. trading is still a big part of goldman sachs. it is still sort of the driver. real before from the trump administration, it may become more important. dakin: that is true. people think harvey has done a good job in a difficult environment. he has gotten good marks for that. jonathan:ank dakin -- taken dakin, thank you. the first part of 10 minutes, trading down. hard to draw a line between the confirmation of the news this morning. coming up -- trump and tech. the sector got hampered -- hammered after trump's win. they will meet with a president-elect and what one called a groveling session made for reality tv.
we are about 100 points. down about 0.1% on the nasdaq. water truly treading ahead of the fed decision. out to abigail doolittle. abigail: we have tactile movers today around the open. we are looking at qualcomm trading modestly lower to neutral. analysts citing valuation as saying the global consumer is looking to negative. they receive 99% of the revenue outside of the u.s. as for evaluation, the shares are trading at a 14% discount to perhaps the stock is up nearly 40% this year. as for a winner, shares of the stock higher on an upgrade, the analyst saying he believes thatnvidia will grow by 50%. he sees of shares of the stocks,
up 100 79% this year. a stunning move. when we talk met on a macro level, this is a look at the trump trade. the sector rotation, financials have done well. s&p 500, not so shabby. tech is underperforming, up about 3%. amazon,s, facebook, google, underperform according to merrill lynch. it is interesting if these companies can turn things around so investors can get more excited about the fangs. will be meeting with the ceos of some of the fangs. why? what is he looking for? at what might the tech titans ask for from him? also under the trump tower is cory johnson. answer the question, what is
president-elect donald trump hoping to get? a good question. he definitely ruffled feathers in silicon valley and maybe made enemies. from trump -- the candidate as troy bell did have a lot of support in silicon valley. tech trays out of the country. -- trades out of the country. companies like trades out of th. companies like intel and ibm selling so much overseas. roaracle cl is expected to be here and she is spoken clearly for better trade policy and less regulation would be great because they sell so much overseas. the notion of international trade is the threat of some of the statements of candidate trump. the tech leaders arrive here in trump towers. david: the employee a fair amount of people and we had ibm coming on saying, we will employ
25,000 new tech people in the united states. this is something the executive will try to persuade mr. trump they will be good employers in the united states? cory: the ibm announcement was a strange one. they will spend $1 billion over four years. ibm spent $1 billion in 15 weeks. and they are trying to get attention as if they are doing something extraordinary. by some ofositioning the companies. there are legitimate concerns about exports and imports and immigration. the democrats of always try to pursue comprehensive immigration policies and that was a code for wanting to try to solve all of the immigration problems at once . republican administration may have a different take a give tech leaders exactly what they want. from: many thanks to cory
trump tower. jonathan: it feels like pr. a little bit. he gets to say they came here. if you keep lifting the bar. david: that is the question. a lot of promises being made. jonathan: coming up -- more immediate future. vonnie quinn, what is coming up? chair --rbors economic harvard's economic chair and we will go through the economic policies we know of that donald trump is expected to enact and what exactly he thinks. he has been an republican supporter in the past. we will look at his thoughts and fiscaley might mean in stimulus which is a huge question for federal reserve. do they wait until policy gets enacted in some kind of environmental impact or impact
on the economy? we will speak to our global head of fx and what exactly we might anticipate in terms of a plan, when the fed raises by to divide basis points later today. win, you canleast apply. vonnie quinn, looking forward. count of you down to the federal reserve decision. pretty muchis certain. the key things to watch is what the fed will communicate about the future. from new york, this is bloomberg. ♪
jonathan: this time last year, december 2015, of said sigrid -- the fed signaling you may get 4 basis points. and we are waiting for one. this is how the stage is set for potentially the first rate hike this year. about 23 minutes in the session, equities retracing some of yesterday's moves. the dow, a seven-day winning streak. p5 hundred treading water, the price action subdued ahead of the decision as the news conference which will follow. very quickly, i will walk you through the bond market and some of the moves we have seen. 215.at where we are now at down for basis points but the retracing has been vicious. strengthened. what does it mean for the federal reserve and how will janet yellen transition the fed
and policy to move around the markets? a softern, definitely dollar story. the yen is stronger and the cable rate as well. a 127 handle, up a 0.3%. and opecout the fed dominated much of this year. david: exactly. janetl be learning how yellen will be positioning the fed going forward. as it is ready to raise the rate, is it all-powerful as we think? -- withwn with federal former federal chairman alan greenspan and asked him what he thought about central banks across the world. there's apan: presumption that central banks control the interest rate, i wish that were so. 1979, had to raise
rates 20% to get the system rebalance. that tells me that the federal reserve or any of the other central banks around the world had control of that particular point. that allike to believe you can do is turn them off here and reach in and i was looking for the right knob. and -- it is very difficult. is a do not think there state of realism. very difficult, according to alan greenspan. this will be difficult. the dot plot over at the federal reserve in each dot, the market in line with the fed for next year. how does that even and how do the dots move when nobody knows what is coming?
david: they are limiting their ability. jonathan: what is your reaction? your spam must talking about a hot economy, will you do it next year? david: you win. what will you do with it? jonathan: a 25 basis point rate hike later. the questions towards janet yellen. we will have special coverage of the news conference and the fed decision. it begins at 1:00 p.m. new york time. the decision on 2:00 p.m. good morning, this is bloomberg. ♪
welcome to bloomberg markets. we are going to take you from new york, to london, washington, paris, and hong kong in the next hour. here is what we are watching. it is decision day with a few hours left until the most highly anticipated fed announcement announcements this year. french farmer giant sanity is talking with -- with competition heating up, can the parties reach an agreement? mark: -- vonnie: an exclusive interview with douglas flint on what the global banking industry is expected from the trump administration. we are 30 minutes into the trading day. julie hyman is here with the latest. julie: we are not seeing much
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