the chinese prime minister spoke, an old friend of china's. when china pauses leader made his first trip to iowa in 1985 during an exchange. philippines president roderigo sharing more details of his conversation. facess trump controversial campaign and he assured trump the philippines will maintain their ties with the u.s. the president-elect passes approval ratings have improved grammatically since august. 22 a national poll, half of u.s. -- heading in the wrong direction. in august, the number is 68. sick and other civilians to be

evacuated. -- whichs are facing rebels have control since 2012. global news 24 hours a day powered by more than 2600 journalists and analysts and one in 120 entries. this is bloomberg. ♪ scarlet: live, i am scarlet fu. joe: i am joe weisenthal p are we are 30 minutes from trading in the u.s. scarlet: overcoming a selloff in health care. joe: the question is what did you miss? scarlet: trump's rhetoric has become the most potent weapon in market and he put pharmaceuticals on alert.

seems likely to continue to be one of the most important themes of financial markets. chinese shares quickly react. a longtime friend of china's president she shoot thing. it is mending ones and bridging divide in the transition. we will have more highlights from the conversation later in the show. let's get you started with a look at where the major index stands. standing by on record watch. what a turnaround in the major averages opened slightly lower. searching.absolutely a nasdaq is not far from a record close in the dow firstorts putting in its record close for -- since

september of 2014. the policy meeting, we had a big rally in europe and asia and some investors are expecting the east to two extended bond buying program which would support extra liquidity. not participating and not trading, we have the biotech index down nearly 2%. donald trump indicated he is an drug prices. high this could reflect the fact that this could be perceived as an nt -- empty threat. the trump administration did indicate they are -- considering jim o'neill for the head of the fda. he did say he is a proponent of progressive approval, a different methodology that could bring down prices naturally.

bit pervering a little day. we look at 4667. this is a chart of biotech and blue going all the way back to july of flying 15, down 35%. a big bear market. convergence up 7% this year, down within 20%. a higher risk convergence up, ia tell it could be weakness ahead. we have the nasdaq in a bearish consolidation pattern. the oneent version of back earlier that brought pullback to her the biotech index, it's a weakness continues, it could be a signal ahead of broader market week this to come. bloomberg contain --

obtained access to the federal reserve staff members. here was some key takeaways. . fantastic scoop this was 2010 memo, internal at the new york fed deliberating how they saw the economy unfolding and how best to combat praised cure what do you make of the memo? >> they all have economists and for them to then taken to the meetings and take -- speak intelligently and decide what to do. in the have learned briefings from the new york fed, it was interesting. it was a fed eyes and ears on wall street or 2010 was a tumultuous time in the market

and on the economy. we are rid of a from potential access reserves as they pumped into the system. there were concerns in the market. knew what theally ramifications of qe were going to be an a lot of people thought it was money printing that would lead to hyperinflation. that is right. throughout the course of the year, we saw the greek debt crisis blowup. and they became more worried , which led ton more radical policy proposals. i brought you guys a chart that illustrates this well. right here. against inflation above 4% for five years. the blue line, and this is the one you circled, it is against deflation for five years. >> that is right. at the beginning of 2010, denoted by the verb red bars, we

were really concerned about high inflation. you can see throughout the course of the year, it becomes a much more concerning thing. that is december of 2010. out, at thezoom time people were simultaneously concerned about high in elation and deflation. both of them trended lower but at the time, it seemed we were stuck between awful situations. >> exactly. you have the full arc of them coming. oh. at the time of september 2010, where the fears hit their peak, basically what the new york fed we should tie what we do with balance sheet with future movements and inflation. that is a precursor to the role that the fed went with inlaid 2012 two years later.

becauses is radical everyone recommends qe2. just started buying every month. in retrospect, it was not the most effective program. let's time, they said just -- >> two years later, it is exactly what they did. a lot of fed officials now when you talk about going forward, the next time you have a downturn, be less conservative at the outset and go full stimulus at the beginning. mario draghi is credited with doing whatever it takes to stave the euro. what we have learned from the documents is the fed got there as well, i'll be at a little more slowly, to do whatever it takes the mandate.

>> mario draghi said that in july 2012 and then you have the fed come out with open-ended qe months later. this goes all the way back to years before. price levelg, targeting. the difference between price level targeting and the targeted inflation rate is when you are price level targeting, if you are missing on the inflation objective, you make up for that later. whereas the fed has been under running the 2% target for several years. in a way, it is too late. a willingness to overshoot. >> at least we were until about two weeks ago. hear some of the members of the reserve bank residents talk about that. you hear them in their speeches saying, if inflation is higher

than 2%, we should be ad for advertising that time. this is the proposal the new york fed and staff were suggesting in 2010, which ultimately was not taken up here at one of the big component -- opponents of it was janet yellen herself here it she had rest -- reservations that it would be too confusing or difficult to understand. you had concerns about inflation at the time. that conservative element that ultimately predominated. scarlet: bill dudley who runs the new york fed. influential the new york fed is roses the other banks. of financial markets and the banking system here in new york is a financial center. they had insight into the markets that the other reserve banks may not necessarily have, given they are not front and center there. you can see that as well coming

in the discussion of what is going on at the time. again, investors you can clearly see in the options prices, or concerned. you look at the transcripts, even bill dudley himself, i am not concerned but you need to consider that investors are. has the fed early-onset we are going to do open-ended qe and compensate for any undershooting or inflation target, how my things have unfolded differently? matthew: on the one hand, they eventually cuts back. a year-and-a-half, they ended up buying a lot of bonds. if you started and said we will do this right now, the other

inflatione had been scare in 2011, people were hard before paying for food and groceries and that sort of thing. having it be path dependent from the outset would've helped balance and smooth out some of those things. story and a fascinating thing to think about that people will talk about for a long time. check out the story on the website. really interesting stuff. reacted torl icahn president-elect donald trump's cabinet picks. highlights from that conversation. this is bloomberg. ♪

scarlet: take a look at this chart here. the white line is the dow jones industrial average. the pink line is the s&p 500. what is important here is to note how steady the rally has in . we have crept our way higher seemingly without an august catalyst. the market seems very june of this year. bonds, real estate stocks, tech, everything thrown at everything. the s&p 500 at a record high as well. stocks continue ahead right now.

donald has chosen a close ally of the fossils fuel industry to run the environmental protection agency. carl icahn joined earlier today in an exclusive interview to talk about how he may have influenced us his decision. carl: donald asked my opinion on it. some agencies are ok and some are not. the epa has gone way too far and has run amok with these regulations. is totallyion that absurd, and i have seen many absurd things in my career, is the party where they obligate refineries to blend. you cannot no one will buy blended gasoline. you have a tremendous transfer of wealth from the obligated

party, which is a winery, two big oil and the guest asian chains. i think this hopefully will come to an end. i spoke with scott pruitt for five times and he is a great pick. will domebody i think away with many of the problems of epa, and they have many of them. him, and i doto think he feels pretty strongly about the absurdity of these obligations. >> what do you want to see out of the gate as far as the

epa's's involvement with the fossil fuel industry? overhift and that emphasis the past 48 years, are there changes that can be made from the epa to reinvigorate that? >> reinvigorate which industry? >> fossil fuels. carl: i do think there will be more leniency in the fossil phil area. thatt to make it clear what i am talking about, some of the insane regulations the epa has done. understand it, it gets a little arcane. i am talking about nothing to do with the rss. i have opinions. that is something a lot of people argue about. i understand there are arguments to be made here we are not even talking about that. we are talking about getting rid god damn obligation.

the government was never meant to really rule for no reason. some people were up in ann arbor, they have no business experience, and -- now there will put these refineries out of his this for no reason. the guest asian chains. the whole thing has been, you know look. i get enraged by some of these things in corporate america. made billions of dollars for not only myself but all shareholders. i hope to be part of a team that does away these crazy regulations we have. i'm not even talking about the big picture question.

epa is throwing out the baby with the bathwater. this is the stupidest way in the world. i am so glad there will be a change there. i guess i cannot be clearer than that. scarlet: privy to clear. i want to pivot and ask your thoughts on what donald trump has said and done when it comes to other companies. are you comfortable with him calling out other companies like carrier and boeing air force one project and the price involved in that? carl: i think donald wants to create jobs in america. he will do whatever he can to do that. is to let best ways the business know he is not at war with them. leavetrying to say do not our company fast.

what he told carrier right on willaying look, regulation change here. so, do not leave so quickly. his wife some are ok. i'm not saying every rate -- every regulation -- there are good regulations and you need them. they have gone in many cases almost insane and what donald is trying to say is we're going to get rid of a lot of regulations here in like going back to the crazy obligated rule. they should change that immediately if possible. how do you obligate someone to do something they cannot do? as far as i'm concerned, donald is coming in and saying we must get good jobs coming into the country and that is over. saying, dois really not leave the country, stay here and we will help you with regulation in every way you can.

i do not want you to leave. scarlet: that would be the case but is he picking winners and losers? carrier is just telling not to leave the country. he is not picking anybody. joe: up next, the u.n. is declining to an eight year low and china takes action. we show you how next. this is bloomberg. ♪

scarlet: equity markets around the world keep their cool after the latest political upset, the italian referendum. this is a 10 day volatility of the world index, which includes developed markets. .hat shot up after that going along to early november,

the blue line marks the november election. to the yellow dotted line, and that was the intaglio and referendum. the establishment lost, but this time, the poles got it right. a cost -- across the globe, big leading gains as bond yields rise. green.ing is in the joe: it is remarkable how 2016 was supposed to be the year of political risk and volatility and none of it panned out. about, thisking will be the policy risk and people do not know what policies will come out of these elections. scarlet: political surprise, yes. at china inoking particular, giant -- gigantic whichgendarily huge pile

peaked at 4 trillion u.s. dollars. it has been steadily grinding nearly ones now down join dollars from the peak in the summer of 2014. the combination of weakening theencies and people taking money out and the country has to burn through its currency in order to keep it up. you see a look at the very deep corner there, this was the worst month of outflows. since the early time of the year. worse than 10 months. this is an ongoing issue. continues to bleed out. scarlet: part of it is that it is devaluing currency very gradually. >> the underlying trend of money coming out and having to spend money to prop up the u.n. maintain initiative. scarlet: the market closes next.

take a look at the big gains. the dow up to a record close and the s&p is higher. this is bloomberg. ♪

we are moments:

away from the closing bell. "what'd you miss?" willuropean central bank prolong its bond buying program. i am scarlet fu. joe: i'm joe weisenthal. i want to welcome the users who are tuning in live from twitter. scarlet: we begin with our market minute. the dow, s&p,for and dow transports. it rose 306 points at its session high. this is the 12th record close since the election. doubt remember when 10,000 people had dow 10,000 heads, but we are close to a 20,000.,000 -- a dow scarlet: if you come inside the bloomberg and take a look at the

centers participating, it is pretty notable. areut of the 11 sectors higher by the end of trading today. the exception was health care, down 0.9%. even in that case, 41% of the names were down. that was because of trump. there was some fundamental news. a suit toes filed terminate its purchase of a leader. you saw that name move higher, but another took a dive, down 8%. donald trump crowd to bring down -- vowed to bring down high drug prices. it might be in a tweet, a conversation, you never know. the nasdaq bio index down. bloomberg bio, down 11% on a day. joe: trump making news in a time person of the year interview. i want to look at the two-year yieldsyear bonds where

were noticeably lower and that makes today's markets so remarkable which is that we saw big flows into stocks and into bonds at the same time. prices up when yields go down. yields are going down so people are buying u.s. treasuries. that is what i said earlier in the show. everything went up all at once. we have not had as many of those days, but today was one. scarlet: maybe there is a central bank meeting today, maybe that is why. qeio draghi is extending beyond the original deadline of next march. the pound weaker after industrial production numbers disappointed. i will get to that later. the euro gaining ground versus the pound, dollar, and yen. the euro moving farther away from parity. it started at a 20 month low in trading but had a quick snap back and is at its firmest. .oe: take a look at commodities

some random once across the board. silver having a really good day. for theotally clobbered election. it is a commodity and hit his precious metal so it has been getting -- but it is precious metal so it has been getting destroyed. whole milk in new zealand, one of my favorite currencies to watch. the new zealand dollar voice takes its cue from whole milk. some of that opec euphoria coming off the market a little bit, now down below $50 a barrel. scarlet: i was watching a $50 level. those are today's market minute. let us look at bloomberg. you can find our charts using the function at the bottom of the screen. maybe brexit is finally starting to show up in u.k. numbers. you had pmi coming in below expectations earlier this month. that is a drop in the yellow line. manufacturing production declining in october. the purple bars are economic

data, economic surprise index. data is no longer beating expectations to the same degree. there is that drop off. oil and gas money was a big part of the drop in the manufacturing production. to see whether manufacturing output specifically continues to be a drag. that will be something people watch for in the months ahead. joe: there has been scattered, weak data. german industrial data came in weak. australia having its worst quarter since 2008. maybe some of the good news in the economy, maybe that partly contributed to why yields dropped. scarlet: it doesn't play my equities were flying. unless it means fewer hikes. -- explain why equities were flying, unless it means fewer hikes. joe: here is a chart of flows out of precious metals, uts. look at the huge -- etf.

down flow. huge it shows you how quickly there has been a turnaround on this. let us talk about some others it has been trades and some sort of fascinating things we're looking at in this postelection period. want to bring in bloombergs luke kawa. there was a huge surge of money into etf's that were sort of short duration etf's, basically everyone coming out of long bonds and treasury into things that were on sensitive to rates. -- not sensitive to rates. luke: on monday, the top five flows to etf's, the main thing they had in common was they held floating-rate bonds or very short rates corporate debts, jumped at or just sovereign debt. the biggest outflow the same day

with vanguard's long-term bond fund which most of those things materialize after 2040. in september, i was talking to kathy jones at charles schwab, she said duration rates is the one thing that clients don't talk to me about anymore. that is the one thing everybody is worried about now. joe: this is a chart scarlet brought up on her terminal. huge spike, what are some of -- these flows? luke: barclays short-term debt. some of them are safe havens but you are still taking on risk. joe: the common thread is that they are protection against the rising rates? luke: yes, or at least less vulnerable. scarlet: when we talk about a, it is more than just seeking out 10 year or 30 year securities,

isn't it? luke: almost what i was just mentioning, the kind of bonds you would think would be most sensitive or have the most duration risk are things like long-term sovereign debt in safe mavens, u.s., swiss, germany, -- havens, u.s., swiss, germany, because there is less risk associated with those. there is a lot of sensitivity to interest rates affecting the price. scarlet: it is funny that you would have duration being measured as interest-rate risk when you are investing in fixed income. how can you strip that out? luke: there are different components to it as opposed to default risk in corporate bonds. today, the action we have been talking about it, it makes it really remarkable, rates have really come in. we have one of these everything rallies, the likes of which we have not been a wild. you could look at a chart -- in a while. you could look at a chart like

that that may have been a tell. on monday, we saw that huge blow . there was a huge flow into assets that were avoided risk of duration and then we get the huge duration rally today. mario draghi and the ecb have the potential to kind of crush and bring an risk premiums. we know we have the fed crushing risk premiums and they handed it over to the ecb, boj. expectationpolicy reversed that but we have the potential for central banks to grab the narrative again. scarlet: there have been duration occasions in the past, but they never really panned out . what is different this time? luke: the thing that is most different this time is always at bank of america and had a look, beenhe baton seems to have passed more fully to fiscal policy, a lever that has a lot more room to work and i would say the expectation that inflation is rising, data is

firming, seems to be much more entrenched. you have signposts like chinese factory gate inflation coming back, so i think a lot of that tail risk is siphoned out of the market. joe: we have heard so much about the potential for fiscal policy since november 8 and everybody is like the long-awaited fiscal stimulus is coming. are people thinking that story has gotten to ahead of itself and we really don't know what is coming, and it might not be as big as people think, and it is more just a market meme than something that will affect the economy? luke: i think that's a fair statement. david wu thinks there is more likelihood for risk than forecast. he says the instructor spending --at best a late 2017 story infrastructure spending is at best a late 2017 story. if you look at canada, trudeau's

infrastructure spending has really shown up at all. scarlet: where does this duration rotation leave munis? or they low duration hydration products or, it depends? luke: they have more credit risk built into them then your u.s. treasury. scarlet: true. luke: it is along the scale. scarlet: you can always find something that matches your risk profile. joe: follow the treadmill these etf flows. they pick up interesting flows like that. luke kawa, thank you for joining us. scarlet: letters get a recap and equities. the dow and s&p closing at all-time highs. a dow transport closing high as well. 10 out of 11 sectors in s&p 500 closing in the green. health care companies came after donald trump indicates he does not favor high drug prices and

he wants to bring them down. joe: coming up, we look ahead to 2017's economic road with michelle meyer, head of economics at bank of america merrill lynch. she will give us her outlook. this is bloomberg. ♪

>> i am nina melinda. first word news this afternoon. president-elect donald trump has elected terry branstad as u.s. ambassador to china. he is a long term friend of president xi jinping. he called brand said an old friend of the -- branstad an old friend of the nation.

they met during a sister state exchange. donald trump says mitt romney is still in the running to be secretary of state. he and the 2012 presidential nominee have come a long way together despite romney's harsh criticism of trump, he said. he said he will be announcing his choices in. mr. trump: next week -- choice soon. mr. trump: next week will be the big announcement and i have a big announcement coming up. we met with very good reviews of the people i have chosen. nina: meanwhile, trump has been named time magazine's person of the year. times as it gives the title to the person who has had the greatest influence on offense for better or worse. investigators say the driver of a baltimore school bus that smashed into a transit bus last month was speeding and had a history of crashes and seizures. accident killed six people. national transportation safety board said the driver was going nearly twice the speed limit

when he struck a ford mustang from behind and then struck the transit bus. news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am need of melinda, -- i am nina melinda, this is bloomberg. scarlet: linda mcmahon has been chosen for the small business administers and head. linda mcmahon married to vince mcmahon, known for developing entertainment. she is a former republican candidate. she has been chosen as donald trump's small business administration head, according to reuters. what you me --"what'd you miss?" seen unusual events including the expansion of negative interest rates and an opec agreement to cut oil production. 2017 is expected to be just as volatile with trump taking office, and unsettled year with

lingering concerns on china. here now to discuss is michelle .eyer michelle, when you were formulating your 2017 outlook, the headline that caught my eye was that you see only one fed rate increase in 2017. it would not even come until the second half. what is going on? michelle: that is unusual. that is the consensus, i would say. the reason for it is that janet yellen will still be the head of the fomc. she will be embracing a cautious equalizerowards the asian process. in terms of what will change in the medium-term, the big story is the fiscal stimulus which is unlikely to kick in until the end of 2017 and it is the big story for 2018. when you think about the first half of next year, you're supposed to think about the same economy that we had previously

that we have had this year. you're supposed to still think about, you know, the relationship with interest rates in the dollar. interest rates have increased which is some tightness in that respect. my view is that the first half of the year to softer in terms of growth. in the second half, growth accelerates and that allows for yellen to ramp up the hiking cycle. remarkable,retty the degree to which markets are repricing things. inflation, long-term interest rates, and we talk about a lot since the election, but it started in the middle of july, the rise in rates. has the market got ahead of itself? is it in line with where fundamentals would dictate things should be? would you think is the story of what is really going on? michelle: that is a good story that i think people forget. a lot of this is moving in advance of the election, particularly around inflation and inflation and petition.

the idea that we were moving from a disinflationary environment to one where we can see inflation. --my view, this move inflation has reset to level that are more appropriate. the question going forward, you can look at the chart, our forecaster headline inflation, we will get to 2% maybe by the end of next year, but certainly, it seems like by 2018 and that is the fed's target. that is when the story starts to change. how much above target are we going to be able to see and does the fed kind of allow in terms of that overshoot? scarlet: there are different types of inflation. get inflation, bad inflation, as a inflation, wage inflation, and price inflation. is there an order in which it is supposed to appear? michelle: we have seen asset price inflation. when you think about monetary stimulus, it will most directly feed into acid price inflation.

asset price inflation. we have seen that and we are still seeing that clearly. question is the when you start to see wage inflation, price inflation, feedback?is nicel nice andee higher inflation wages are heading higher and the labor market is at or close to full employment. relationship, positive feedback between which is heading higher and underlying price inflation moving up, too. joe: you mentioned earlier the strengthen the dollar and the rising weights, both of which have the effect of tightening financial conditions. of a factor are those financial tightenings going to be on the real economy? michelle: we can look at what happened in 2013 with the temper tantrum around rates and the

dollar tantrum. both are good examples and i think for interest rates, it is harder to quantify the impact, but for the dollar, we start directly widening out the trade deficit and core consumer import prices fall, which by our inels, had led to a slowing inflation. i think, depending on how much the dollar moves from here, you know, we could have maybe a 5% to 10% inflation to early next year and that is significant. components in our forecast is we have a widening out of the trade deficit. scarlet: productivity gains have been fairly elusive in this economic recovery. what is your confidence that donald spending could boost productivity? michelle: this is something i found that shery ahn talks about llen talks about is

that not all fiscal stimulus is the same. some can boost potential gross and others borrow from the future and create excess and boom. i think you hit on infrastructure spending. to me, is a structure spending program, if that were to happen -- and infrastructure program could support trend growth and expand the business cycle. at this point, it is unclear as to when that would be limited. there is also questions as to whether it would be tax credits or government spending and it has a different impact to the economy. scarlet: michelle meyer, head of u.s. economics at bank of america, merrill lynch. housing next.on this is bloomberg. ♪

withand we are back michelle meyer, head of u.s. economics at bank of america merrill lynch. want to talk about housing, what of the big stores this year and one of the key reasons people were less on the economy. if we going to the bloomberg, we can see evidence that the margins of how rates affect the economy and market, here's a look at 30 year yields inverted with the nba index. when rates go up, these go down. all of the things trickle into it, so what is the impact of these higher rates we have seen? to be significant, going on people's willingness to take out a mortgage. michelle: i think, i mean, you point to the relationship between interest rates and refinancing, which is clear. that is a very tight relationship. i think there is more uncertainty as to the

relationship between interest rate temperatures applications, the ability to buy a new property because it is not only the level of rates, it is the level of income, expectations for future income, and home prices. --hink if you can generally generally higher rates is a crunch to affordability. if you see higher rates as indicative of growth, they are offsetting factors. scarlet: this is something you noted, housing prices reached a height of its cycle and gained across the board, every major census region, is this sustainable? michelle: i think there's reasons to be concerned. last month's report which was exceptionally strong, looks like a lot of noise, and in following the housing data for many years, whips onhese weird

a monthly basis. the bigger picture is, should we be worried about some weakening early next year to have a further increase in rates before you have that gain in income? for single-family, there could be some concerns. joe: going into one of the things the housing both point to is that this is not a cyclical story. ulls point to is that this is not a cyclical story. inhad the millennials household formation and there's going to be a lot of demand there and building needs to happen regardless of the cycle. do you believe that that fundamental driver is a true phenomenon, and at that will continue for a while -- that t hat will continue for a while? the millennial cohorts

is a large population group and they will create households, and household creation spurs stock. that story is right, but it is very hard to disentangle the stories. it is difficult for a population to buy or rent. any confidence, credit extension. you need those cyclical stories to play out. joe: michelle meyer, great to have you here. thank you for joining us with your outlook for next year. michelle: my pleasure. scarlet: coming up next, they first met in 1985, and out of now it appears president xi jinping and bransted. this is bloomberg.

♪ generosity is its own form of power.

you can handle being a mom for half an hour. i'm in all the way. is that understood? i don't know what she's up to, but it's not good. can't the world be my noodles and butter? get your mind out of the gutter. mornings are for coffee and contemplation. that was a really profound observation. you got a mean case of the detox blues.

don't start a war you know you're going to lose. finally you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. nina: i am nina millon does. president-elect -- i am in a. president-elect trump has linda mcmahon, the former ceo of world wrestling entertainment. she met with trump last week and was an early supporter of his presidential campaign. trump has tapped general john head the department of homeland security, according to reports by multiple media outlets. this nothing will reportedly be announced in the coming days. study says repealing president obama's health care

law without a clear replacement risks making 30 million people uninsured. losemillion people would coverage directly due to the repeal of the subsidies, medicaid expansion, and the individual requirement to carry health insurance. matteo renzi has resigned after sweeping defeat on his reforms agenda that was central to his nearly three-year long government. hasident sergio mattarella asked him to stay on until a new government can be put in place. he will start consultations with various delete is to see where support lives for new government. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am nina. this is bloomberg. scarlet: the dow closing at yet another record high. it is 12 since the election. the s&p joining in on the fund

sends a close at an all-time high as well. so did the dow transport average. the nasdaq up 1.1%. joe, maybe there is a bit of rotation going into tech stocks now. joe: everything was up-to-date including postelection losers like the bond equivalents. just green everywhere. "what'd you miss?" more cabinet picks. president-elect donald trump has tapped linda mcmahon, cofounder of world wrestling entertainment for head of the small business administration. he is also going to appoint terry branstad, a longtime friend of chinese president xi jinping for ambassador to china. and the president met in 1985 during a sister state exchange. you see the photo of them, 30king young and chummy, years ago, and now they are going to be reunited again. branstad's new role is critical.

for more from washington is bloomberg news white house editor alex wayne. alex, thank you for joining us. let us start with this announcement of who is going to be the ambassador to china. obviously, donald trump has antagonized china on the trail and since becoming president-elect, but now he is appointing someone who has been a friend to the country for over 30 years. here?is the move alex: it is a bit of a knowledge e branch afterliv donald trump took the call from taiwan which really offended the chinese. they were fairly reserved in their reaction and they are starting to figure out that trump is first and foremost a negotiator and he is going to start out with the stakes as high as possible. scarlet: well said. alex, do we know if branstad

agrees with donald trump when it comes to branding china currency manipulator and do you agree china is not doing enough to buy american exports, or does that not even matter because i've ambassador, he will say what donald trump wanted to say? michelle: it doesn't alex: -- alex: it doesn't matter what terry branstad's opinions are, to be frank. if donald trump wants to declare china a currency manipulator, terry branstad is the one who gets to deliver the message. is thee personnel, what malaise is, it does seem sort of like a savvy move to placate the messages, it does seem to sort of be like a savvy new to placate things. michelle: alex: it will be like an open door when he goes to deliver news to the chinese government. scarlet: in terms of the other cabinet picks, we have the homeland security pick as well. it looks like donald trump has

two military leaders as part of his cabinet. he has opted to secretary of state yet? still not yet. is there a point at which you generally don't want to point anymore military leader is because you want someone -- anymore military leader's because you want to appoint someone with experience? alex: you don't want people who are not elected making decisions on when to start wars. a 200 year history. that is the concern. remember though that barack obama appointed a few generals to his administration when he was first elect did. he appointed a general early to lead veterans affairs and security adviser and national intelligence. trump has appointed two the general to cabinet positions and you might see a third as secretary of state although i do petraeus long

odds. where, any new information today? alex: no. lola last guide -- the last guy he met with was rex tillerson. he is pretty tight with russia. i'm not sure that donald trump wants to send that signal, given the speculation already about his ties to russia, so i am not crazy about to listen. -- tillerson. of course, i'm down on romney as you know. if i were to put my money anywhere, it would probably be senator bob corker, actually. yeah, you know, he has not been mentioned a lot lately. he may have faded from the top ranks of trump's list, but i

think as trump goes through these other folks and figures out there weak spots, he might weak spots, he may well circle back to corker. anrlet: we talked to investor about downtime tapping the oklahoma attorney general as head of the epa. >> i have spoken to scott pruitt were five times. i think he is a great pick. i told donald that i think he is somebody that i think will do away with many of the problems that the epa -- and they have many of them. scarlet: carl has given it his big sums up. he would roll back a lot of the regulation that is choking the fossil fuel industry. what can you tell us about what scott pruitt would likely do? how many of these regulations can he tackle on his first day

on the job? climate changeim deniers so presumably, he would quickly get rid of the clean power plan and he would be on trump's side as he tries to withdraw from the paris climate deal. i think scott pruitt, democrats in the senate will fight over this guy. i think democrats really have to wage a war over him because climate change is one of those try towhere they really do things themselves from republicans, so i think they will really try to put a few more moderate republicans to defeat his nomination. joe: alex wayne, thank you very much. scarlet: breaking news on italy. a company has changed its outlook on italy from stable to negative. this comes on a day that matteo renzi, the prime minister,

resigned. italy's long-term senior unsecured government bond rating is affirmed at baa2. burden to expects the increase next year. italy's debt is slightly over 133%. a lot to do with this banking industry and the repairs that need to be done there. and we talk about the ecb its premise on the idea that italy could keep its fiscal some affairs in order, so concerns growing on that and you have to wonder. scarlet: no real change in the euro following those headlines. this is bloomberg. ♪

scarlet: for a deeper look into china's relationship with the u.s. and the uncertainty surrounding the incoming administration's foreign policy with asia, let us bring in 10 zhao.- chen he was formerly a professor. great to see you again. thank you for joining us. there was a huge uproar when president-elect spoke with taiwan's president by phone from al qaeda corners. donald trump of course could make the argument that in treating taiwan as an equal, -- from all kinds of corners. donald trump of course could make the argument that in treating taiwan as an equal -- chen: this is a very sensitive issue. i don't understand why president-elect trump actually has taken the call. the reason i'm saying that is since 1979, one china

policy has been the bedrock for a one china relationship. if you are trying to cross that line by taking a call directly from taiwan's president, you send a message that this one china policy may not be honored. in that case, all bets are off, so the chinese government will be very nervous watching this and of course, so far, their response has been very measured. they are trying to make a point where i understand the difference between the message from a government in waiting from the policy from the government -- of the government in charge, so they are still trying to figure out exactly what this means, but make no mistake. this is the most sensitive issue of sino u.s. relationship. one person was saying he believes when it comes to china, taiwan matters more than

the chinese relationship with the u.s.. joe: what kind of ramifications could we see? you said all bets are off, but what does this mean practically, let's say, trump would continue to carry this over into the actual administration. what happens if all bets are off? michael: there could be a potentially -- chen: there could be potentially dangerous and devastating consequences from that. for example, the united states government saying i'm no longer honoring the one china policy, that may very well encourage taiwan to move towards separation. case, the the chinese, the mainland chinese government, may not have any other option but to launch an attack because they are facing 1.2 billion people at home and -- 1.3 billion people at home and they have the deeply held view that taiwan is part of china. if you let taiwan just a way, no

government can handle that kind of pressure. you may very well push the relationship into an extremely volatile and possibly very dangerous path scarlet:. scarlet: donald trump has accused china of manipulating its currency. is the said the yuan second strongest after the dollar. does that matter if donald trump is concerned with the filling his campaign promise? is a very ironic thing. the chinese government has been manipulating the currency, but they are manipulating the currency in favor of the united states it is are fighting a war of capital. they are trying to hold up the chinese currency instead of pressing it down. you look at the chinese currency over the last two to three years, it has appreciated a lot along with the u.s. dollar. the only currency that the chinese yuan has depreciated somewhat is again the dollar, virtually against all other

currencies. it has been strengthened. that is one thing you have to keep in mind. another thing is that yo if you look at the chinese currency, the typical signs of undervalued currency are there. if you look at the chinese exports, the export performance has been pretty lousy, so if you take all of that into consideration, you cannot really make a strong case to say that the chinese currency has been manipulated on the downside, so i do not think you can make that case at all. joe: we see there is a chart here we have up on the air. the chinese trade surplus having shrunk quite a bit, much smaller than it was precrisis. earlier in the show, we showed the chinese reserves now down nearly $1 trillion from when the peaks in the summer of 2014. what is your assessment of what is going on? it has not been in the markets

like it was at the beginning of the year. what is going on that in your view? chen: there are common think you have to take into consideration. the first thing is that since the trump is election, all emerging market currencies have taken a beating. that's including the chinese yuan. that is the first thing you want to take into consideration. the chinese yuan against all other currencies, the chinese yuan is not particularly weak, so that is the first point. the second point is that the dollar has basically searched recently. if you take the revaluation reserves, that basically probably marked down the chinese reserve by 32 billion dollars, $33 billion. the second thing is expectation from the chinese residents that the chinese aren't might depreciate and that is why they are trying to pack up and take the money out of the country. billion or to $30

some amount. if you take those things into consideration, there is capital flight, but it is not as severe as the numbers that show. the key point is that this is a policy that cannot be sustained. they need to do very dramatic reform in the foreign exchange market. they have to float the exchange rate. you cannot control both foreign exchange rate and interest rates . it is impossible to do both. at the same time, having capital mobility. they are trying to achieve three things at the same time and it is not possible. the chinese government has to wake up and realize that you cannot do this sustainably. totally.-- they have to take dramatic measure to reform the system. scarlet: that is a work in progress. there is an argument that china does not buy enough of its

exports. there is a massive trade imbalance that the u.s. has with china. how does it the u.s. government go about forcing china to buy more from it? chen: this is another problem that cannot be resolved very easily. the chinese have their own grievances, too. this is a forever problem. if you look at the recent past, the whole u.s. government is trying to get the chinese to address its trading and balanced problem, but the chinese saying, tell me what you want me to buy? the stuff that i really want to buy are completely restricted. you are not allowed to sell them to me. if you look at the breakdown of the chinese imports from america, the biggest item is soybeans, and the second biggest one is aircraft. the chinese government will always argue that i cannot feed all of my people with soybeans. there is a certain limit of what i can buy. by the same token, they are just by socannot

many airplanes. i cannot by hundreds of them. you -- buy hundreds of them. allowing me to buy the stuff that you are really good at, what are they? you know, -- [no audio] scarlet: that was chen zhao. summer, the man gave money to sears. we go inside the company's numbers as investors show a lack of faith in it share price. this is bloomberg. share price. this is bloomberg. ♪

scarlet: i am scarlet fu.

"what'd you miss?" sears at the feet of the hedge fund manager. the ceo and the company's single biggest shareholder. with his latest $300 million loan to the chain, he is helping years stay afloat. sears is the focus of today's the numbers don't buy. vendorsured lenders and who are nervous about the cumulative $9 billion plus in losses since 2012. that decline is the result of something comparable sales. as you can see, sears only put in one quarter of positive sales growth since 2000 in 2010. -- and 2010. it was not supposed to be this way. lambert merged sears and kmart in 2005. investors were hopeful at the time, betting on the company's value. sales in the stock never really

picked up your it real estate is key to the company. seals has raised cash by divesting assets such as stores, and it's clothing business. -- its clothing business. it made a real estate investment trust in a transaction that raised $2.7 billion. holiday shopping season, positive signs from the overall industry with sales climbing more than 2% in the final part of november. sales getting three point -- gaining 0.2%. in the meantime, the restructuring continues. the company may sell its craftsman, kenmore brand along with its repair business to stem the losses. sears business. joe: time for the bloomberg business flash. a look at some of the

biggest business stories in the news. lost 9%h of hedge fund in november according to a note to investors. it means the billionaire money manager is on course to report his worst year since starting the fund more than two decades ago. the decline in the european fund brings the total drop this year to almost 40%. a spokesman did not reply to an n.l. seeking comment. china mobile and alibaba are beating up offerings to fend off increasing competition. the parent of chinese largest wireless carrier and the nation's biggest e-commerce operator will explore opportunities in cloud computing the internet of things. they already collaborate on e-commerce, mobile payments and i.t. of the structure. apple is pressing hollywood studios for faster access to their movie in an effort to bolster its own itunes business according to people familiar with the matter. several studios have confirmed

they are looking to offer high-priced home video rentals of new movies shortly after they open in theaters. that is the bloomberg business flash. scarlet: coming up, what you need to know to gear up for tomorrow's treating day. this is bloomberg. -- trading day. this is bloomberg. ♪

>> dow transports closing at record high today very as for tomorrow, don't miss it. china's trade balance for november will come out overnight. we will be watching those numbers care to -- carefully. >> and i will looking at the ecb decision to be announced. >> mario draghi's news conference after that. metric at a: 30 a.m. eastern time.

>> let's start with a check of your first word news. president-elect donald trump says he will be announcing his toys for secretary of state soon. mitt romney is still in the running.

donald trump says he and the 2012 republican residential money have come a long way together, despite romney's harsh criticism during the campaign. thewhile, drop nominated island governor as u.s. ambassador to china. it is a longtime friend of chinese president xi jinping. mcmahon is the former ceo of world wrestling entertainment. general john kelly has been tapped to head the department of homeland security. that is according to reports by multiple media outlets. this election will be reportedly announced in the coming days. time magazine is also honoring the president-elect as its person of the year. title to the present who has the greatest influence on the events, for better or worse. trump called it a great honor. it is the 75th anniversary of a day which will live in infamy. japanese warplanes attacked