week with equities in the u.s. at an all-time high and the dow staring down 20 cap. -- 20k. crude getting a big pop. alix: donald trump's probable peg, exxon ceo is said to be the favorite for secretary of state. trump calling him a world-class player while some senators warn of his close ties to vladimir putin. 10 year treasury yield above firstdriven by opec's production agreement with non-opec members in 15 years. italy's future, expected to report to the italian president. monte dei paschi's board is speaking with its year end recapitalization plan after a delay was rejected by the ecb. david: let's turn back to that

selection of secretary of state. reportedly, president-elect donald trump is close to selecting his secretary of state and the name comes from big oil. andtillerson, the chairman ceo of exxon mobil is a world-class dealmaker, stay tuned, according to donald trump. alreadyators are expressing reservations because of his close ties to vladimir putin. putin is a thug and murderer and anyone else who describes him as anything else is lying. we cannot have an accommodation with the russians until they understand what ronald reagan taught them and that is peace through strength. right now, we have no peace and no strength. i don't know what his relationship with vladimir putin is, but it is a matter of concern. david: joining us now is the

president of the council of foreign relations. book, aso author of the world in disarray. thank you for being here. what do you make of this possible nomination? do you agree that is where it is going and what would it mean for state? >> it is a hard transition, but it seems he is the clear favorite. until it is over, it is over. the president spoke about him on fox and it was 90% likely. mccain andfrom john others, this question of russia to hisg to be essential confirmation and it is coming at a time where russia is everywhere in the news because of the whole intelligence brouhaha. david: how concerned should we be?

is it an advantage or disadvantage? he has dealt with mr. putin and successfully. >> that is going to be the question, what exactly was the nature of those deals and more important, what does he think, going forward? it is one thing to be a businessman with a set of considerations. what they will want to know is what does he think russia's policy should be on the ukraine or syria or the continuation of sanctions and that will all come to the fore. jonathan: i have heard people described exxon as a country, led by rex tillerson. how much different is that to run the state department? know, hellerson, who i has tremendous what i call ground truth.

he knows the details of the places he operates. all of that is clearly to the good. he has not had the public-sector experience. if you remembered what happened to paul o'neill when he went from alcoa to the treasury department, it is not exactly in the annals of bureaucratic success. else, whatnything matters is donald trump. decides torump appoint rex tillerson and get through a confirmation, and he will back him 100%, that is the essential prerequisite. what you cannot do as a secretary of state and will make it impossible to succeed is if people see daylight between you and your boss. donald trump has officially nominated retired general john kelly to the position of secretary of

homeland security. alix: and matter who ends up getting that secretary of state job, where did the western sanctions stand against russia? you had the rise of glencore and the potential of these individuals who have closer ties or a working relationship with russia. >> the sanctions are still in tact and fairly extensive. it is a fairly clever arrangement to get around the letter or the spirit of the sanctions if not the letter. you are on both sides of the atlantic. you have lots of people in europe, particularly in france questioning whether the sanctions have done what they needed to do and if there ought to be some relaxation. the donald trump administration with what is seen as a certain bias towards russia might put that on the table, particularly if the united states and russia worked out a deal on aleppo and more broadly, syria.

the sanctions are more in play, given what is happening on both sides of the atlantic. jonathan: you bring up a good point. the position is divorced from the rest of the western world, but there are people in europe who feel that they need to scale back sanctions. this is something that they trump administration could actually have in common with the rest of europe. >> with the machinations in italy, it is hard to make predictions. you will see in europe, some distinction between sanctions linked to crimea but other sanctions potentially being reduced because of the middle east to give a little bit of play. there is a whole school of thought, not just that the sanctions are economically not making enough of a difference, but that they are kind of locking in our hands and denying flexibility. not saying i agree, but that --

i was just in europe. david: also, with respect to china, take a listen to what he had to say on donald -- on fox news. >> this was a call put into me. it was a very short call saying congratulations on the victory. it was a very nice call. why should some other nation be able to say i can't take a call. it would have been very disrespectful, to be honest with you. david: in that communication, he actually put the one china policy on the table, that is a departure all the way back to richard nixon. >> that is big. it is one thing to have taken the call, but then the follow-up is putting in play the one china policy, more than we have seen for decades. the chinese reactions keep getting tougher by the

government spokesman. my own view is this is a policy that has worked. hasanessa an issue, taiwan flourished economically and become a real democracy. we are able to arm taiwan. unitedle, it enabled the states and china to build this enormous economic relationship and selectively cooperate on regional and global issues. essentially, it works and if it ain't broke, don't fix it. this is existential, this is not a preference, this is not a side issue. this is the core of the country, there is zero give. if you read the chinese chat rooms, the chat rooms are really issue,listic over this which suggests to me, not only is there no give on the government's part, this could

make it more difficult for them to cooperate with us on north korea. jonathan: referring to taiwan is a country is one way to really irk china when it is a rogue province in their mind. let's get you up to speed on stock movers. you had to look at oil to understand what is happening in the markets. brent is up by about 4%. wti has doubled since its low earlier, this year. 2%, shall up 2.5% -- shell of 2.5%. saudi saying they could cut -- 2.6 millionls barrels a day. other movers we are watching, phillips selling 80% of its lighting unit.

the stock is off by about 4/10 of 1%. morgan stanley calling that price tag marginally disappointing. italian banks fall on everyday big movers. monte dei paschi and unicredit. pursuing capital raising plans, trying to find investors $5.3 billion by the end of the year to avoid any kind of rescue fund from the italian government. unicredit was able to sell pioneer investments, helping them with their finances. they are selling to a moon d, making it the eighth -- selling to amundi, making it the eighth largest finance manager. david: we will go live to vienna. one hour from now, we sit down with david rubenstein. his take on the markets and the businessmen coming to washington. ♪

jonathan: from new york, this is bloomberg. nation said over the weekend that they would join the opec pledge to reduce oil output, saudi arabia agreeing to cut oil by more than previously agreed. we sat down with russia's minister of energy to discuss the impact of these cuts. the have to say that situation is different as we go country by country, but i was pleasantly surprised to see so many countries respond to the invitation to participate in this deal. i would have to stay -- say that most of the countries join us and that it is important that they join us, voluntarily. most of these countries will be

taking active measures to reduce production. jonathan: karen off the back of that, up the most, to levels we have not seen since july of 2015. w g i crude on the screen -- wti crude on the screen. what is saudi arabia doing this for? i talked to our cheap energy correspondent, earlier. -- whether this is about putting a floor underneath the market. david: the ipo of aramco needs it. anne-marie,e news, but saudi arabia front and center saying we will do whatever it takes. what is driving them to do that? : that was the

shocking news after they announced its opec not opec agreement. that is what we saw move the market and that is why we see brent trading above $55 a barrel. the saudi oil minister says to cut below 10 million barrels a day is a key psychological rep -- level, a red line for the kingdom. they never said they wanted to go below 10 million barrels and this means they will be bearing an even bigger front if they decide to cut below that line. jonathan: people still question the compliance of whether these countries will follow through. can you walk me through the cuts? on the real cuts versus natural decline, besides russia and kazakhstan, all of countries, non-opec members, they are white noise. russia is the one to watch. no one was expecting them to

significantly say they will cut 300,000 barrels a day. the two biggest exporters in the , theynext to saudi disagree on it, but they were able to come together on this deal. the one to watch in terms of real cuts for not opec is russia. as you say on compliance, who knows. opec set up a monitoring committee to monitor how this is going to happen, but it will come down to p or pressure and that comes down to the saudi's. they are bearing the brunt of this cut and they will put pressure on others. if they don't see their peers cutting, then it is back to market share. alix: thank you very much for joining us. for more, we are joined by richard haass. there are so many aspects of this deal. is this a deal that goes through as planned? teach at theed to

kennedy school, the difference between design and policy and design in imitation. there is one other factor besides all the cheating and the like and that is to what extent is there a short adjustment and how does the u.s. energy market react, if there is slack to be picked up. historically is how nimble american energy producers can be. even if this goes ahead, it could be offset. says that won't happen, the u.s. won't respond, goldman sachs says not so fast. nobody really knew to what kind of extent what kind of diplomacy has been forged between saudi arabia and russia. is making ahink it difference in both countries, feeling pressure. $40 a barrel oil is not what their budgets are based on, and saudi arabia in particular has

seen large protests against the government, against the deputy crown prince because of some of the reforms that lower revenues. russia's economy has been sinking for several years. vladimir putin can benefit from his foreign-policy quote unquote, compliments. -- accomplishments. -- in thisefit situation, the two of them do that -- to have a case for bringing a prices. david: how does this affect foreign relations? richard: i would say that the saudi's can get a bit of time and space, but they are under tremendous pressure domestically. the russians are doing what they are doing in the middle east and the ukraine so i do not see this changing. is somethingates of a swing producer.

it used to be the saudi's and now to some extent it is us. this is part of the new international relations. oil has reentered in a way we have not seen for years. david: thank you so much for being here. news out of italy over the weekend with a new prime minister in the making. we talk about what it means or the struggling bank, monte dei paschi. ♪

jonathan: this is bloomberg daybreak. let's get a check of the markets. this is how the stage is set ahead of the fed, later this week. dow futures moderately positive. market, yield more than 250 on the u.s. 10 year. we have not seen that since october 2014. crude getting a big pop, up

4.5%. the mandate given to form a new a tie-in government to replace his former boss. the outgoing foreign minister's most urgent challenge will be the troubled banking sector as monte dei paschi moves forward with plans to raise 4 billion euros in capital after the -- after the ecb rejected the banks request for more time. a sense of urgency. some thought we might get a resolution over the weekend. how do you see things playing out? -- certainly a sense of urgency. this could be one of those annoying christmas is where we have to keep an eye on it -- annoying christmases where we have to keep an eye on it. the italian regulators want this

to be solved. there is the issue about bailing and retail creditors, but i think that can be solved and i really think that all parties involved want a solution because the fundamental reality is if you don't get a resolution, the private recap deal will likely fail and when that fails, you are stuck with an openly insolvent institution. there is really no way back, and i think that is the key story. i haven: i feel like seen this movie so many times with italy. this is four on elected prime minister's running. we have mario monti, we had matteo renzi and now we're looking to get paulo those he -- how will he do anything different to the ones previously? >> there is the monte dei paschi

story which has defined -- which has to find some kind of solution. then, i think an underlying theme in your question is will there be new elections and it is very likely we will see new elections at some point into next year, i just think that this issue with the banks and especially with this particular bank is something that cannot be pushed -- that can be pushed through regardless of whether we will have sort of a more fundamental political standoff in italy. david: are you saying it can be pushed through without the new elections, even if ever wires those depositors taking a significant cut? >> what will happen is it will be a year of trade. it will be one of those things where they will take a hit, but

then be able to seek compensation and be converted to something else which makes it look as if they are not really taking a hit, even though they are. this will be a eurozone type solution which will be difficult for anyone to look through. onhink they will take a hit -- i think the retail creditors or depositors are going to take a hit. i think that is inevitable. jonathan: what did you make of the ecb not granting an extension of time? but was surprised by that, they are playing tougher. they really want to come out with the signal that this particular issue, the monte dei paschi issue is really resolved, now. in terms of why they did not allow the three more weeks, i cannot answer that.

that was quite weird to me. jonathan: great to have you with us. can you believe it? the last elected prime minister of italy. david: it is extraordinary. jonathan: the banks and the politics, two stories. coming up, we bring it back to the united states. the dow up 13%, this year. will it continue to outperform in 2017? later, an exclusive interview with david rubenstein. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg. we kick off a new trading went, two days away from a federal reserve decision. futures positive on the dow.

market, yields at the high since october 2014. a ton of supply coming into the market today, including $24 billion worth of three-year notes. 1.16 handle, a significant yen weakness. pick,trump's probable exxon ceo, is said to be the favorite for secretary of state. trump calling him a world-class player. some senators warn of his close tie to vladimir putin. 10-yearlping push the treasury yield to 2.5%. saudi arabia says they will do whatever it takes. italy's future, lindsay's replacement -- renzi's replacement center report today. monte dei paschi is looking at the plan after a delay was

rejected by the ecb. let's look at the front page of barons from over the weekend -- dow 20,000 -- get ready for it, apparently. what has changed is psychology, animal spirits to use a cliché, have been aroused. industrials and financials have gone on the biggest spring in their step. the front pages more emphatic than what might be suggested. i have sat down with a market historian over the years to ask how you know when the top is in. bullishally there is a front page out there. , peopleinly have noise get very excited, maybe a little overexcited.

david: so you are sort of making a call yourself. jonathan: not my business. david: talking about anil spirits, their golden -- talking about animal spirits, they are golden. alix: and you look at the next two weeks to the end of the year. portfolio managers are having to rebalance the portfolio to encompass the rally in banks. david: to get her perspective on the equity markets, we're joined by cv december many in, bank of america merrill lynch head of u.s. equity -- 70 december many subramanian. how much further can the market run up? >> i think animal spirits is probably the best way to put this. the one thing we have not seen

in this bull market for the last seven years is absolute euphoria on stocks. we have seen tepid reallocation and a stocks. if you look at one of our indicators emily wall street strategists, they are telling you to but about half your money into stocks, which is pretty low relative to the benchmark of 60% to 65%. so next year could be a great year for stocks it we get the ,ood case scenario from policy we get fiscal stimulus, tax cuts, a business-friendly administration, you know, the optimism building in the market already, as you pointed out in the barons article. that would put the market at around 2700. and the way we get there, this is the s&p, the way we get there is if you apply the typical kind of late year bull market returns, which are pretty strong , to current levels of the market, you typically see about

20%, 25% returns in the last year of a bull market. that could pit next year's s&p at 2700, so that is a good case scenario. we're kind of building half of that into our market outlook. the bad case scenario, which is almost equally likely or maybe even more likely, is that policy disappoints. and here, what i worry about is, as you pointed out, industrials has run, materials have run up on expectations a very strong fiscal stimulus and infrastructure spending. let's say we don't get as much what think we are getting, worries me that multiples have already really almost overreacted to expectations of very strong fiscal stimulus. what i worry about is that policymakers disappoint rather than deliver. alix: so we have the short term of the next two weeks and then over the course of 2017 -- look

at the bloomberg, which shows the monster rally we have seen. and it shows a number of stocks is a-week highs here there narrative this is all of this is borrowing from any rally we might see next year, that there will be paybacks the matter what. >> next year, i think one thing we can be more certain of than anything is volatility and big swings in the market. and probably early on, as we sort of move past this year-end rally and i just reality versus hope. i think that that could cause a fair amount of near-term volatility, let's call it first quarter of next year. we also have some events in the next few weeks here and we have the fed in a couple of days. it is typically an event met with a little more volatility. i do not know if we are out of the woods on this market or not, but next year, i think you are

going to have to sift through what is real and what is expectational. where i see the market really running ahead of itself is on the stimulus. that is where we think these stocks could pull back aggressively. jonathan: earlier this year, it was the other way around, stocks down aggressively and people asking whether things would become real, whether stocks would roll over in the economy would take a hit. i am going to take it the other way. even if it is not real at this will we be able to stingley the u.s. economy in the next couple months? >> i think it can. maybe what they are doing is pulling forward growth from the future, but who cares? if we get it in the near-term, it will probably be good for the market. the question is, when do we get it? tax cuts, i think there is a higher likelihood of that happening in 2017. fiscal stimulus could be pushed

out to 2018. the question is timing an actual dollars spent on each of these things. i think michelle and i agree that that is not a very clear landscape right now. we still have to wait and see what actually comes through on the policy front. valuations andut equity ratios and what would drive this higher. with the ratios go higher or earnings go up? >> i think we are seeing multiple expansions anticipating much, much better next growth, and we are expecting better earnings growth, a recovery from flat growth this year tonight present earnings growth next year. multiple you, any look at is trading at a relatively high level versus this historical average. the marketearnings, is trading about 18 times, which is relatively high. p/e,u look at the schiller

price to normalized earnings, if you look at price to book, you name it, any multiple you look at, the market is not looking cheap. that is another risk. if we had a great entry point from a valuation perspective and growth coming through, hugh know, no holds barred, we would be as bullish as ever. but in this case, we're seeing expectations maybe get a little ahead of themselves in an already fairly overvalued market environment. that is another reason we are a little more cautious. alix: take a look at the 10-year yield, 2.5%. if i told you in august that the 10-year yield would be 2.5 percent in december with no disaster selloff in stocks, you probably would have thought i was crazy. so when does this filter in? >> i think the of the risk is that leverage ratios for the corporate sector a fairly high. they are not off the charts, and

companies have, fortunately, locked in fairly long dated debt. see thisill not problem arise until they have to refinance, which could be in a few years. but you are right, we have not seen what happens for the market in an environment where yields are jumping pretty aggressively, almost overnight. another concern is that we have had this really friendly environment for leverage for the last 7, 8 years now. and what happens when that quickly changes? so that is another test we need to see. one thing i would recommend is looking for companies with solid balance sheets. if you look at technology or oflth care, parts industrials, financials, these are sectors that have really kind of shored up their balance sheets and do not look particularly risky. are moreas that levered, materials, telecom, utilities some of those are

areas we would regard a little bit more closely or we would do the work in figure out where the risk of leverage is really coming through. alix: great to talk to you. savita subramanian, bank of america merrill lynch, head of u.s. equities and quantitative strategy. we have breaking news. renzi's democratic party voting to support gentiloni's government. supportey are going to it, but what is the mandate? reform and trying to banks.th the italian if you are invested in goldman sachs in the u.s., different, but nonetheless, material risk for the market. david: it will not be a terrible change in the direction of the government. alix: coming up, the 10-year treasury climbing about 2.5% for the first time since october

2014 as a december rate hike looks to be a sure thing. will janet yellen change the rate hike's path? that is the big question. this is bloomberg. ♪

>> this is "bloomberg daybreak." coming up, david rubenstein, carlyle group cofounder. jonathan: it is federal reserve decision time, two days away, and the treasury 10-year has climbed about 2.5% for the first time since october 2014 as a december rate hike looks like a sure thing. will janet yellen change the fed's rate hike path for next year, 2017? joining us now is harm bandholz from unicredit. it is the dot plot. everyone is sick of looking at it, but it is different this time around. the market is now back in line with the federal reserve -- a year ahead. when is the last time we saw

that? >> i cannot remember, honestly. i do not know if it happened ever before. dotsase case is that the don't change. market participants have a different view of things for 2017. they will have fiscal stimulus. i think the fed will tell us that they may adjust all the forecasts so that once they have more information about the stimulus and whether it will be passed, because we do not know any details yet. there is a lot of talk about a stimulus. i think most likely we get some stimulus, but we do not know how big it is and when it will kick in. you go back a year, and we thought we knew what was going to happen in 2016. we were wrong. this year, we really do not know. how does that affect the market, just knowing we don't know? >> so far, they market ask you get knows what is going on. it has been rallying like crazy.

i think it has gotten a little bit ahead of itself. ,nce we get more information maybe the market gets disappointed a little bit and you may see a selloff. for now, reflation trade is the name of game. there is a narrative this is the doves have a little bit more ammunition this time around then the hawks. this is the bloomberg financial conditions index. as a goes lower, gets tighter. if you are eight of, you can say, guys, the financial market has done the work for us -- if you are a dove. >> i think we heard the narrative already. you referred to the dove hawks , which have pointed to the risks that if we delay rate hikes further, financial stability goes out of control. the doves had been pushing back. but janet basically did copy and inte using the hawk argument

her own speech. alix: that things have changed in the past couple weeks. >> i think that does not matter. she has acknowledged that there is a risk of waiting for the. she is 1 -- of waiting further. she has adopted the hawk language about the risk of waiting too long. economic numbers have come in on strong side. so i think there is no doubt that, at least this week, the doves and the hawks will be very well-aligned. said we donicredit not understand the reaction from the ecb anymore. what is the reaction from the federal reserve at this point? now the market is full of distance that anticipate the federal reserve to counter monetary policy if the fiscal stimulus comes. >> my colleagues that the ecb's reaction function is blurred. the fed has been blurring its own reaction function for some

time. the dots came down for quite some time without corresponding adjustment in the economic outlook. the inflation and unemployment and growth forecast have not changed that much, but the dots kept coming down. i think there is this natural long-term interest rate, that concept. we kind of have an idea what the reaction function is, but we do not know the perimeter. the important parameter we quite do not know exactly, the fed is trying to get a handle on it, the natural interest rate. so yes and no, we do not know the parameters but we do kn ow the reaction. david: to add one less thing we don't know, that is who will be on the fed. there will be leased in top openings, maybe more. and donald trump, during the

election, had issue with the fed and keeping rates so low. >> i think maybe president-elect trump follows through in appointing summit more hawkish board members, governors. but eventually, when chair yellen's term is up, he is not following through on this. was a critic about the fed that they do not raise rates enough. but about a year ago, he said he is a low interest rate guy, and of course he is. why would he shoot himself in the foot by appointing a hawkish fed chair? so i think he might follow through more short-term on the board, but when it comes to the fed chair, i do not think it will be a very hawkish one. david: makes for a fascinating 2017. thanks so much, harm bandholz of unicredit. bloomberg will have special coverage of the federal reserve's decision. stories for other making headlines at this hour.

here is your bloomberg business flash. to thea has complained world trade organization about u.s. and european union tariffs. the chinese wants them to stop using example prices from other nations. china says they are using third country miles desk models to raise tariffs on chinese exports. $17 billion of airplanes to iran, the first 11's kind since 1979. now boeing may have to sell that to president-elect trump. trump as opposed to the nuclear agreement with iran that eased economic sanctions and cleared the way for the boeing sale. maker -- a drug capital maker with a price of more than $5 billion, more than twice kkr pay for the company five years ago. that is your bloomberg business flash. alix: thanks. coming up, saudis fight for

market share. yes, they are cutting, but one region will still fight for the market share. we will break it down, next. this is bloomberg. ♪

the historic agreement between opec and non-opec. you have brent over $55 a barrel. rhetoric over the weekend, shock and awe -- saudis will do whatever it takes. the math is important to it we learned over the weekend that a lot of the non-opec cuts will be from natural decline rates. talkingwhat we're about. mexico, for example, the natural decline rate year at about day,00 barrels of oil a

meaning those were declining a matter what they were going to do with opec and non-opec. colombia, as well. even oman. why do we care? many analysts have already factor this into their inventory estimates for 2017, meaning the punch this will have on the actual inventory number will be much less. and if opec does not fully comply with their cuts, it puts much more emphasis on non-opec to do even a bigger job. and the saudi's say they will do whatever it takes here they want to make this work. they want to drill into those inventories. yet, they still want to fight for market share in asia. this is the official selling price from saudi arabia to asia, -- it is falling by about the discount now is about 45 cents. they want to compete with a want that business in asia appeared so they will do whatever it takes. it is one of the most important

regions in the world. if this goes through and if there is relative compliance, abc inventory drop, this is the matters.t that the brent wti curve from december 2017 to december 2018. it jumped up here, many prices are more expensive today van -- more expensive in 2017 than in 2018, meaning the market is pricing and inventory drops. tangle for a very long time, september of 2015. how sustainable is this or has the market that ahead of itself altogether? will we see the inventory draws that saudis have been betting on? this is the chart you need to watch into the first quarter, were compliance will be key. watch the crude coming out of these countries. watch the product coming out of these countries. will they flood the market with products?

i wonder whether the saudis have said, you know what, we're not sure either. they did put stimulus in the market in a big way. david: they have been great at the verbal stimulus. jonathan: coming up on this program, an important conversation with the carlyle group cofounder, david rubenstein. he said the u.s. would probably enter a u.s. recession in the next three years. i trumpsense, but as white house change that view? that is coming up next. stocks at all time highs and futures trading water. in new york, this is bloomberg. ♪

jonathan: a warm welcome to

"bloomberg daybreak" on this monday. it is fed decision week. as of the at all-time highs. futures up on the dow. s&p up at all-time highs. alix: trump is a probable pick, exxon ceo >> fullerton, said to be the favorite for secretary of state here trump up calling him a world-class player, while some senators warn of his close ties to two. crude soaring today, helping push the 10-year yield up 2.5%. saudi arabia says they will do whatever it takes. italy's future, voting to back efforts of paulo gentiloni. monte dei paschi is sticking

with its year-end recapitalization plan. that is what you need to know david: the stock market has been since donald trump was elected, setting record after record. according to barron's, the psychology has been changed. ,nimal spirits have been roused that the least in the stock market, where industrials and financials have gotten the their step.ng in david rubenstein of carlyle group joined us lester and warned we were due for a recession. sessionsd to have her every seven years, since world war ii in the united states. so at some point in the next two or three years, we are set for a recession and you do expect some slowdown after the good growth we have had over the past couple years. david: david rubenstein is back with us today, and now he is a

star of a bloomberg tv program, where he sits down with the likes of warren buffet, bill gates, and lloyd blankfein. welcome now as a professional of bloomberg tvp or dwell, board. >> thank you very much for having me back. congratulations on your success. you can see that i have worn the same coat and tie here to let everybody know, including my mother that is watching, i do have other coats and ties. for bloomberg.y david: a lot has changed when you were here. but what about the business cycle -- where are we now? with donald trump coming on, has it changed? when alan greenspan was head of the fed, there was some talk that the business cycle had been repealed the cousin of a recession. that turned out not to be the case. since world war ii, as i said before, we have had recessions on average every seven years, but we have gone as long as nine and half years. i think it might be down the

road a little bit because there's more confidence in the market. justified or not, there is no doubt that we're not likely to have a recession in 2017. it has been said that it is the end of whom and best. -- of boom and bust. >> if you're pushing it down the road, at some point the decline could be greater than otherwise would be the case. weht now, i do not think will see anything like 2006, 2007, a gigantic great recession . when we have it come i think it will be a modest recession, but it is not likely to be in 2017. you are likely to see a stimulus out of congress and see tax cuts. david: how do you process all the information as an investor? where are you in your cycle about buying and selling? states, we ared

determined to make investments now because we think it is a good time to invest here at prices are not cheap, but financing is available. in europe, i think prices are a little bit cheaper, very attractive right now. alix: what about all the animal spirits you have been talking about means it is time to buy and sale? high,ht now, prices are so there is a fair much of selling going on. good investments. the sectors doing quite well are the ones you would want to sell. alix: can you help us understand which are which? i spoke to one and those who said in energy, i got nothing. where is the distressed opportunities? >> distressed opportunities may not be in the united states anymore. right now in the united states, everything is doing reasonably well. some companies might have learned too much at while the sector might be good, the

company itself might not be in great shape. david: what about europe and geopolitical risk? we have seen a lot of geopolitical risk in markets not being able to price it in. how you process things with the turmoil in italy and france and perhaps even germany? that europe is more stressed than the united states and maybe even asia. because of what is going on in italy and with the brexit situation and the uncertainty in france and the next president, i think you can buy things at lower prices than before. ecb has done quantitative easing and will have to continue that. indoubt prices are cheaper europe than elsewhere. jonathan: you bring up monetary policy and you touched on the availability of financing. the price of credit is going to change in the coming years am a perhaps significantly what will that mean for you? will benot think it that significantly at if the fed would increase the fed funds

rate by 25 basis points this week, even if they would go 100 basis points over the course of next year, that is not a gigantic increase. if it was several hundred basis points, that would be different. there is plenty of credit availability. if that went away, that is a problem. i do not see any sign of that happening. david: in the headlines we're toing things like perhaps listen going to secretary of state. how does it affect things like russia and china? >> we do not base things on a headline today or tomorrow or so forth. we are looking at longer-term investments. i do not think it will affect what we do in terms of a longer-term investment. we're still very bullish on china. alix: talk about bullish on china. markets were flying today, just

not in china. why are you bullish when it seems to be the risk of a trade war with the u.s.? they want to burst of the property bubble. about three hundred 20 billion people in the united states to 1.4 billion people in china. of thehe size population, the number of consumers there, while there might be temporary ups and downs, the amount of people there to buy products and services is significant. it is a small percentage of their economy compared to the united states. there is still an enormous opportunity in investing in china. jonathan: a disclaimer? >> alan greenspan said the advantage of looking at china was you could tell the numbers before the quarter was over. i think the economy in china is two different economies. the state-owned enterprise economy might be growing at 2% to 3%. economy,preneurial

logistics economy, they are growing at 10% to 11%. i think the numbers are pretty legitimate. chinese leaders views many different things to figure out what the numbers are, and they use electricity transmission, rail transmission. i think they would say 6.5% is a good number. jonathan: david rubenstein, carlyle group, thank you for being with us. let's check on headlines outside the business world. >> president-elect trump is rejecting intelligence assessments that russia tried to help him win the election, calling the claim ridiculous and says it is a matter of democrats finding another excuse for why they lost. a group of republican and democrat exhibitors of called for an investigation. syria says it has regained control of 98% of eastern aleppo. that part of the city has been a rebel stronghold since 2012. the syrian military says rebels

now hold only a tiny enclave. syrian troops launched an offensive against aleppo earlier this month. foreign, matteo renzi's minister has been asked to form a new government. gentiloni becomes prime minister, he is likely to face pressure to step aside in the first half of next year. renzi wants early elections and is plotting a comeback. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. alix: the dow has had five consecutive record closes, an unbelievable move. a little flatness today. let's look at some movers to the upside premarket. continental up over 6%. oasis up by 10%. whiting petroleum up 9%. the question is, how much more money does it mean for the shale ys, and how quickly can they

monetize a production cut? looking at offshore drillers. they are benefiting. transocean up by 7%. by 11% to the offshore drilling market was already up in asia him and the opec deal could bring even more rigs into production. you have more utilization. will they be able to charge more for their services? that is the question. wrapping up with swiss watches. -- swissh maker watchmaker about 1% down. watchmaker brought back about $1.3 million in unsold inventory, the longest slump in about 15 months. the longest since 19 need you to ok, oil up. news out of italy over the weekend with a new prime minister in the making. david rubenstein on what it means for the italian banking

system and the state of europe. that is next. this is bloomberg. ♪ this is "bloomberg daybreak." ♪

alix: this is "bloomberg daybreak." matteo renzi's democratic party has voted to support the effort of paolo gentiloni. this is after the former minister was given a mandate to form the new government by the italian president. we're joined by our reporter from rome. what is the next procedure over the next what he four hours, seven days? >> for the moment, it is going very quickly by italian government crisis standards. as early as this afternoon, we expect paolo gentiloni, who has been given a mandate to form a government, to report back to the head of state. if it happened smoothly, then tuesday, possibly in the

morning, we will have the swearing-in ceremony for gentiloni and his ministers. then we have government number 64 since the second world war. alix: an unbelievable number. what does he actually have to do? challenge is the economic ones with slow economic growth and italy. then he has the troubled banking sector, especially monte dei paschi, that headache. he has to try to do editorial reform ahead of early elections possible next year. of course, checked the rise of a populist party, which would be the first possibly to that effect from the -- to benefit from the current mess in the referendum. alix: monte dei paschi, we thought we were going to get a more concrete plan -- where does monte dei paschi stand now? >> we had a board meeting of

monte dei paschi, and there are planning for the deadline of the end of the year. the hope is, for monte dei paschi, with the political stability, the new government, possibly with a finance minister staying on, it could help to persuade investors to play along with the recap. alix: thanks so much for joining us from rome. full-fledged bail out or not, that is the backstop at the end of the day. jonathan: it is a strange twist on italian politics and democracy. we need to talk about democracy in italy. we bring in david rubenstein. before an elected prime minister in italy, and we still do not have this sorted out. broader applications are for the the eurozone.,

where do you see this going? >> i think leaders in europe will recognize that you should not say -- has this or i will quit. brexit was one thing, and you have italy. there was not a requirement that the italian prime minister put the changes in front of voters, and it was not required that he said he had to resign. he did say that. leaders in the future will probably say if you want to vote for something, fine, i will take it into consideration. that aside, no doubt that europe is in a little bit of turmoil here and you have french elections coming up, and no one knows where that is going to go. you have the new government in the u.k. trying to figure out how to get out of the eu. you have an italian government that is new again. the euro go down probably continuously for a while. no doubt it is in the interest of the u.s. to have a strong europe and strong euro, stronger than it is now. so we not just saying, well, to o bad for you. we want to have a strong europe

and we should exercise whatever influence we can to have some impact on it. as is said -- i suspect the ecb and eu will give credibility to what the italian governments do and will be more flexible and working out this bailout. if the italian government were to be in such terrible shape and europe would be going south because of it, it would not be good for europe. jonathan: europe has been crisis and financial we have seen more political ago.entation than 45 years -- four or five years ago. when we will -- when will we have number stations about re-denomination? greater thing to talk about is whether or not europe and leaders can come together and come up with something that makes sense. the theory of the eu and the ecb and of the euro is that europe would be better off of everything works together and is more coordinated.

despite these devices, the euro, eu, ecb, europe does not seem to be working together. we need the leaders in europe to get together and recognize that they have a potential crisis and have to be more cooperative, recognizing italy cannot do everything that the ecb and eu rules require. if germany and others do not relent to bits, them will be bigger problems in europe. david: there was brexit and complaining that leaders were not really elected. one is really for reforming brussels. is there move in -- movement towards reclamation? >> there is recognition that there needs to be some change. there is clearly a recognition that there has to be some adjustment because the rules are a little too strict. everybody feels disconnected from the bureaucracy of brussels. looking at the size of

will therele, when be help with the banks? you spoke to lloyd blankfein recently on your program. it is clear that the u.s. did not just do a good job of cleaning up the banks after a financial crisis, but they have done a better job of allowing the banks to finance the u.s. economy. >> no doubt that after the great recession, the european banks are not clean up their balance sheets as much as the u.s. of things did. they also had some bad loans and are not lending as much as they should. to be more ecb needs aggressive in telling the banks they need to lend more and also provide more support. i think mario draghi will expect a spectacular job, and unfortunately, he will have to leave. he's the most important financial figure in europe, and when he goes, it will be a big problem. isathan: david rubenstein

sticking with us. david: coming up, donald trump's senior team -- david rubenstein on trump's transition. that is next. this is bloomberg. ♪

this is bloomberg. trump's cabinet is looking more like a board room. rex tillerson, exxon mobil ceo, has been talked about as a likely secretary of state nomination. wilbur ross, commerce secretary. nugent, treasury -- steve mnunchin, treasury secretary. resident ofre a washington and know it well, certainly no business well. have you ever seen anything quite like this, this injection of senior business leadership and washington? what will it likely lead to? >> i have not been interviewed

for anything. david: they may be watching right now. >> i feel left out or no doubt, it is a different group of people coming in to run the government than we have had in the last eight years. i do know many of these people, very successful business people. that does not mean you will necessarily be successful in government. ithink we will see how works. sometimes business people going to government and do very well and sometimes they do not do as well. alix: you have the cabinet looking to be awesome for businesses. corporate tax rate lower, and they will do very well it is that the correct language? >> in the euphoria of postelection, everybody is happy about who has won the election, and when you pick people you think have done well in the business sector, they look like they will do well in government, but you do not know. when i worked in the carter administration several hundred

years ago, jimmy carter had a democratic congress and had been a newly elected democratic president, and we thought we would get everything through congress. turns out democrats in congress have their own ideas. i think republicans may have their own ideas this time. so everything he wants, he just will not get through congress. he will have to pick and choose, so there may be some disappointment. issue there is also the about getting the bureaucracy to do what you want to do. there is a standing bureaucracy at each one of the agencies that can be hard to turn around. henry kissinger wrote about that. >> the president-elect will get to pick about 4000 new people. they will not all be done for while. he may take 50 people the for he ison operated, -- before he inaugurated, and enough 2 million people working for you. alix: you hear the rhetoric and the people being put up for

nominations. you hear about rex tillerson for secretary of state. you aboutthat tell u.s. foreign-policy? it is more u.s.-focused, more company-friendly. >> i respect rex tillerson a great deal. he has worked on energy projects around the world. he has a global perspective. it is corporate. the biggest challenge he will have is the bureaucracy of the state department may not like what he has represented. he will have to deal with that. callhan: if you did get a from president-elect trump, what would be the number one policy you would want to see? >> the most important thing business people want is certainty. just tell us what you are going to do and try to get that accomplished. business people really like certainty.

just tell us what the policies will be. when there is certainty, businesspeople can react to it. realistic policy, things that can get done. i think the economy will reflect that well if it happens. david: thank you for being with us. david rubenstein, star of the that is onstein show wednesdays at 8:00 p.m. eastern time here on bloomberg television. did not need us. doing first oil cut deals with nonmembers in 15 years. crude up to a flying start for the week. that is next. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." i am alix steel. we are doing what you need to know at this hour. the top main stories we are

tracking throughout the entire morning. first of all, you have a donald trump possible pick in rex tillerson for secretary of state. donald trump calling him a "world-class player." some senators worried about his close ties to vladimir putin. a production cut agreement with non-opec members for the first time in the seniors. saudi arabia says they will do whatever it takes. itsboard is sticking to five-year recapitalization plan after a delay that was projected. that is what you need to know at this hour. jonathan: it was all memorized. the market will. -- remarkable. alix: thank you. jonathan: in the bond market, this is your headline. fed, two days away from that big decision from the

federal reserve. basisne expects a 25 point rate hike. it is all about 2017 and the projections coming out of the fed this week. wpi. on energy from minister had a bit of a mario draghi moment. david: donald trump has tweeted this morning about the f 35 program. he says the cost is out of control. millions of dollars can be saved on it military and other purchases after generate 20. this is a lockheed martin project that has been in the work for several time -- for some time. it is a single engine fighter that is meant to support close ground combat troops. it has been a cost nightmare. alix: this is moving on the news. .oeing is down

the idea is that the tweets can move the stock market. lockheed martin is down over 4%. we are seeing the lowest levels for them this morning. jonathan: in all seriousness, what are they going to do about this? we are very used to administrations going after sectors of health care or financial institutions. it is very rare that you get a president-elect going on twitter or any platform and signaling out a single company. ing out of a single company. david: on the one hand, and lets them go directly to the public which is making him more powerful. on the other hand, it does him with a certain my ability. jonathan: it is unclear what the price tag's are for the government, and what it means for the company at this point. alix: the individual company is

moving the whole sector. i mentioned boeing is down. he can move one stock, and then the sector as well. david: there are a lot of people in the defense community that thought for some time that congress is appropriating money for projects that the defense department is not even want. i would not be -- i would be surprised if he did not talk about this with general mattis. opec continues to make news by sending oil prices higher. they met with non-oil -- non-opec oil-producing companies in the anna where they agreed -- in the anna where they -- vienna where they agreed to a cut. we have an interview. >> i have to say the situation is different in my country. i was very pleasantly surprised to see so many countries responded to the invitation by

opec and russia in the deal. i would have to say that most of the countries that joined joined voluntarily. no one is forcing them. it is by their own will. most of these countries will take active measures to reduce production. that is very important. david: we are being joined now by annmarie hordern. it is impressive that the saudis would come out and say if it does not work, they will cut even further. how is it looking over in vienna . >> good morning. of a surpriseugh to have the russian oil minister in a saudi arabia oil minister standing together, to bury -- , agreeing torivals work together. saying that they were then ready to cut about 10 million barrels

a day. it is really a key redline and cycle -- psychological level for them. they are really bearing the brunt of the cuts. that would bring them about 10.0 6 million barrels a day. now they are saying we need business and we are willing to go below the -- we are going that we are willing to go to that 10 million line. the saudi'sems like are ready to go about 60 by the way they are talking. , they are notdi's targeting price. many say this could be because of the ramco ipo that is expected in the next year or year after that. i did ask russian energy minister about the price. he reminded me that the russian budget accounts for oil at $40 a

barrel. he is happy with where it is. he would be happy with the $50 and $60 range. that is what many of them are saying. anytime i asked them about price, they always repeat that they do not target price. however, it does seem a bit are all happy with $50 to $60. alix: great stuff. thank you. for more on this historic opec and non-opec deal, we want to bring in senior energy strategist philip verleger. he was on president ford's staff for economic advisement. board also serving on the of energy for president carter. he knows a thing or two about saudi oil policy. what kind of agreement and non-opec? >> i think we see compliance really on production.

-- early on production. saudi arabia is sitting on inventories of more than 2 million barrels. they have already announced they will cut sales to the united states and europe where there is plenty of oil and other supply. saudi arabia is actually ,ffering more oil to asia because they have been working to build their market share there. microsoft and everyone else, they are not going to give up on their market share. this is where the growth is, and this is where they see their future. alix: there is red or it out there that says the demand is coming down for saudi oil. they could export more product. not the crude, but more product. what you think about that. ? -- theory? >> you are exactly right. they can produce more product and then some more crude oil to asia. they are not bound in any way. the saudi oil minister deserves

congratulations for managing the market expectation since august. he has saved so much money by simply talking the market up he has done a brilliant job. alix: speaking with the shale guys, they say they will be restrained, but the market seems to think otherwise. >> absolutely. they will increase their capital spending significantly this year and 2017. we have to remember that shale production -- the great even points have come far from the last two years. that is a combination of inflation on the oil business, but also because of what you can do internally. technology is not standing still . it continues to improve. therefore, shale producers can produce oil. good, $60 would be even

higher. i think the market that the market will bounce. -- that the market will bounce. it is not a question of if, but when. i do inc. the market will think the i do markets will balance in 2017. i have very little confidence in opec long-term. in the first few months, i think compliance will be 90%. after that, i think it will start to deteriorate. they've been doing that for the last 35 years. i do not think this will be any different. however, i do believe that eventually supply and demand will, to balance. -- come to balance. capital spending has been cut over the last two years by almost 70%. the industry could not replace reserves when he had $100 oil.

my view here is that, in the next two years, we are likely to see a new normal. $40 orot going to be $80, it is going to be close to $60. that is why they are saying that $60 oil is fine. shale production will come meaningfully if prices go to $60. shale production is very difficult to suppress. to belogy continues attractive at lower prices. that is the situation that opec have to face. shale is here to stay. technology continues to improve. time and technology are not on opec's side. jonathan: the reserve of things you mentioned. the first thing we want to touch on is compliance. we have this extra layer of stimulus over the weekend. it was a "whatever it takes"

moment. with whathave to deal they struck with opec and non-opec members? >> no. they are just managing the market. your previous speaker spoke about balance, but this is the new oil market. the inventories are not likely to be liquidated. opec says they want to, but what we have now are people bidding against consumers to add to inventories. the incentive to add inventories for many of the companies is still strong. the inventories will stay there. they are going to build. so, they are going to get the higher price. the saudi's will end up treating the incentive to fill more oil. so, they will generate the revenue. this is the inverse of what central bankers do. oil is something that the industry and people following the oil industry do not

understand. this is an entirely different market that is behaving much different way. in terms of shale, the breakeven cost is down to about $30. this is moore's law being applied to oil. i worked in the carter administration like david rubenstein, and when i was there the united states total reserves were 20 billion barrels. the usgs just said there is that much oil in the permian basin. in the next five years, the whole game has changed. looking at reserves the way we have traditionally is just passe. --x: what is also saying changing is the possibility of wrecks to loosen it to become secretary -- rex tillerson to become secretary of state. business change exxon

prospects if we do get secretary of state tillers and -- tillerson? >> this is very tricky. he had tremendous contact with world leaders. he has more contact with world leaders than the entire cabinet.this is -- this is a company that has had extensive. -- business around the world. all the hot spots. i am not sure that is going to translate into policy and politics. he is an engineer that has worked with in oil company for 41 years. everything is act by fax and science.

unfortunately, in politics as we have seen, you say something but you mean something differently. i am not sure that rex tillerson will be able to flip-flop or change what he says and what he does. of the largest oil company in the world, that is what he has done all his career -- provide us with the facts. i analyze it, and i make a decision based on facts. thank you both for joining us. talking with us about crude after the big moves we have seen. coming up, the latest victim of donald trump's twitter account. shares in lockheed martin are dropping after donald trump went off on their f-35 program on twitter. that is next. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." taylor: i am taylor riggs. ♪ david: live from new york, this is bloomberg. i am david weston. donald trump is moving markets this morning by tweeting about lockheed martin. he tweeted that the f-35 program is out of control. shares of lockheed martin are falling in the premarket. now on short us notice. thank you for joining us. take us into this program.

it is a stealth fighter. how expensive is it? >> this is the only his generation stealth fighter that is in reduction. it is about $12 billion in revenue here for lockheed martin. it is a huge driver for their future revenue and profits. david: it has been pretty expensive. there have been a lot of cost withuns and problems engine fire. has this been a successful program, overall? >> i would say that over the past couple of years, there have been cost overruns and concerns. they have been improved. it is trending in a positive direction, but you could argue that there is still some fluff and room for better pricing in the program. that will come at the expense of likely ability for lockheed martin -- profit ability for lockheed martin. jonathan: seen some of these

industrial stocks rallying. what is clear to me from donald trump is that if you have a government contract to be wary because he is coming after these companies over cost. jan lockheed martin and owing -- beyond lockheed martin and boeing, you can look at these caught -- these stocks and you can say that he is coming after you in terms of cost. you want the prices to be lower. >> there are a lot of big contracts that are coming in the next couple of years. they will continue to ramp up aggressively into 2020. you have the ohio class replacement that is estimated to be $100 billion. i think things are over the horizon in terms of production and spending -- they will be a

clear focus for the president-elect to take a hard look at during his administration. david: we are going to have to take a new look at government contracting. this really going to pose a real problem for government contracts overall? >> at the you have to differentiate. there is cost plus contracting, where the government takes on the risk, and the contractors are reimbursed for the early risk in the program. then they move into a fixed price contract where the profit ability and more risk falls on the contractor. of thatnk, yeah, a lot will have to be dissected over the next few years to figure out what programs are key and where the money needs to be spent. david: many thanks to bloomberg 's douglas for

joining us. jonathan: we need to get janet yellen a twitter account. they can just tweet the decision for us. coming up, the 10 year treasury yield is climbing for the first time since october 2014. the december rate hike looks like a sure thing. we will look at the impact. those questions will be looked at next. this is bloomberg. ♪

♪ david: this is bloomberg. i am david westin. it is time for the battle of the charts. taylor riggs is back to battle alex deal. taylor, you get to go first. >> have oil prices, and there is

nothing deflationary about that. we've been talking about the 10 year yield creeping up to about that 2.5% mark. the statistic we have been throwing out is that it is the highest since october 2014. is nowhere near the levels from back in summer of 2013. when you think about the sentiments and technicals and all the things that the economic indicators are pointing to, really, much higher yields seem to be coming our way. the 20 datert on moving average and the to d-day moving average. when the green line crosses over the blue line, it indicates that the yield is going to move higher. something we are working along here. it is just climbing, david. david: alix, what you have -- do you have? it is justalix: some oil stockse

are on thena -- move, but china is a different story. we have seen the yen declined since the election. bond here trending higher on the yellow. it is the biggest decline in six months. the u.n. at in eight year low. yields rising by 15 basis points. that does not look good when it comes to stability over in china. we saw that back in january and august of -- if we had seen it back in january and august, you would be concerned. is it donald trump or liquidity issues at the end of the year? alix: my question is why. the numbers have not been bad coming out of china at all. tradewe have continued war rhetoric between the united states and china.

they are trying to curb some property prices. i am not sure. the question is why it is not spreading. david: this is a hard one. i am not sure. i think i will go with alix, because china is so important. --athan: david, thank you up thank you. coming up, we will look at the bond market. michael collins will join us. also bob michaels. in the market, stocks are at it up -- an all-time high. ♪

♪ jonathan: good morning. welcome to "bloomberg daybreak."

i am here with alix steel and david weston. we are just a short time away from work it open. -- from the markets open. at -- a week yen in the fx market. crude is trending higher for much of the morning. david: here is what you need to know at this hour. donald trump's global pick is rex tillerson -- probable pick for secretary of state is rex to listen. -- tillerson. donald trump calls him a world-class player, while many senators are concerned about his close relations with vladimir putin. opec has agreed to a production cut with non-opec oil producers. it is the first agreement of its kind in the teen years.

-- 15 years. monte dei paschi moves ahead planits recapitalization after the ecb rejected its request for more time to raise capital. that is what you need to know at this hour. alix: i want to pick up on what you in jonathan have touched on which is the rally in the crude market. gasoline futures are up 3.5%. natural gas is taking a bit of a break, off almost 6%. volume on the contract are searching today at 77% compared to the 10 day average. you have strong volume and longs being added as well. that is having reverberations through the market for big oil makers. , and and chevron are up konica up 3%. a uniquesetting

portfolio that says they can raise cast -- cash flow without increasing spending. the question is do they ran of capital spending and where. how long will that prolong any price spike because of what we have seen. alex, we are going to stay on the energy markets. so,, welcome to the program. it is good to have you here. can saudi arabian officials just declare three at this point because they have done what they this point,ory at because they have done what they need to do. them justthink we saw the price at $30. it is nothere --

surprising that they decided to leave non-opec themselves and the production cut going forward. one what this trigger things again and shale producers in the united states. >> i think this is a different time for the global economy. first of all, you do not have the production you previously had, and you do not have the investment into u.s. energy that we previously had. we were already seeing about $40 to $45 a barrel increasing consumption globally especially in emerging markets. if the price is right in a global recovery, then they are in a pretty good spot right now. marketf you look at the in terms of what will react, you have shale stocks really flying on this deal. they might put more money to work and invest in shale. what part of this is overdone?

where is this too much? >> we do not think it is too much anywhere. we have a bit of an out of consensus forecast where we think oil is going to $70 a barrel at the end of 2017. when we are looking at is a pickup in consumption globally. you put on top of that some production cut of some of the supply side, and possibly a much stronger recovery in the u.s. depending on what donald trump's economics look like, and you could see a rise in oil prices. alix: saudi arabia did not want $80 in oil again. does this move cap that? are they successful in that? $100 andil went to then dropped, everyone was

trying to figure out what the right price level was. people were coming up with estimates on whether it was $60 or $65. at what point are you feeling incentive to invest in energy again or alternative energy, and that seems to be the right level. jonathan: you weren't for jp morgan -- you worked for jp morgan. how is this affecting bond markets over the past month or so? >> it is not shaping up to be a very good for years to be a bond investor. i will tell you that. you are going to see production cuts and energy go up, the tailwind to year-over-year inflation going back over the past 12 months has rapidly does it -- disappeared. it depends on what bonds you have. if you have inflation protected securities, then they are doing great. they have absorbed some of the back of in yield. companies that look

like they might go through restructuring in the high-yield market are doing very well, also. forces.: two competing how do they reconcile? but will be the strongest force -- what will be the strongest force on what is happening? >> i think it will be fx. ultimately, you are going to see some of policy stimulus come through. granted, we do not know exactly what it looks like. we do not know the degree, magnitude, it impact. a tail wind.o be it is going to propel the dollar a bit higher. the interesting thing for us as bond investors is to look at the spill over affect. truly, there must be other economies that will benefit from a stronger u.s.. surely, some of the unconventional tools deployed across europe have to be reversed out of the market.

the dollar has a bit of a tailwind, but it will be interesting to see we get more tapering out of the ecb. also to see if the bank of england switches to a more hawkish stance. alix: bob, thank you for joining us. we have some breaking news on gillette. potle. the ceo will return, and he is that the founding ceo will return, and he is outlined his plan for the company on forward. the current ceo will retire. he will -- he will return as the sole ceo. he started to public back in -- in 1993. he is looking for better ingredients, or excellence in their dining experience. a bit of a shift there for chipotle which has been

struggling since the food scare. david: they have to determine who will run the company, because it was not going so well. alix: and now we know. outside thee on his business world, let's go to taylor riggs. taylor: present elect donald trump is taking aim at the pentagon's most expensive weapon system. he tweeted that the lockheed martin cost for the f-35 is out of control. the pentagon says it will need up to 500 million dollars more to finish the development phase. general john kelly has been tapped to lead the department of homeland security. the announcement from the trump transition team came today. he joined the marine corps in 1970, and he retired earlier this year. he faces senate confirmation.

underway, a manhunt is for a man who could have sold more than a million dollars in gold. the precious metal was taken from a truck near the beaches of lyons. it was before the then was set on fire with two drivers in test with two passengers inside. they were rescued. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. this is bloomberg. david: a quick correction. about therst reported f-35, we want to point out that is lockheed martin that is the producer and not bowing. -- boeing. coming up, the global bond rout momentum. toyear yield have climbed 2.5% for the first time since october 2014. we will look at how investors are replacing inflation

expectation -- repricing inflation expectations. this is bloomberg. ♪

♪ jonathan: from new york, this is bloomberg. imf jonathan ferro. we go now to -- i am jonathan ferro. we go now to italy. bob michaels jp morgan asset management is still with us on what comes next for italy. hespoke earlier about how

term minister. will anything change in the coming years? bob: i do not think so. the amount of data has been extended over the past couple years and how it has held up in the banking system is a concern. we are concerned about the quality of banks. how the bad loans will be worked out, and what that affect will be on the government. anathan: did not said this is countrywide problem. -- they have not said this is a countrywide problem. bob: they are struggling to make some of the targets they have proposed on themselves i year and. hopefully, it is confined to them. i think what we saw with gentle appointmentth the

is that the markets have settled down. the meetings coming up, it is critical for the country. himself outhey pull -- themselves out of this trouble? have a much steeper yield curve you to the ecb decision. can the entire -- can the italian banks climbed out of the problem? bob: they need consumption to pick up, and they need companies to borrow again with the ability to pay back the banks. interestingly, some of that could come from united states if trump economics kick in. --athan: they have built in burned through about 8 billion euros in the capital they have raised. where is the solution going to come from?

bob: it does not last very long. it will take some very aggressive action to cut costs, and maybe sell businesses, and raise capital. otherwise, they will have to bow out. alix: there is political risk in italy, but also in france. take a look at the bloomberg, and it proves the point. this is the jump in the french 10 year yield over the german bund. should this be happening in the french market? bob: nothing has been normal since 2008. it should not be. it is considered a core country. what is going on right now is that bond investors are scrambling to try and understand what the proper level for bonds are. who has the cleanest stories? if you are going to take

government debt now, then owned the government's that you -- owned the governments that you are sure are going to be the safest. jonathan: french yield and italian yields have backed up. how on earth you price the u.s. debt market? in the eurozone, it is being proper by the ecb. bob: didn't we see that from the ecb last week? they do not know how to price it. and onhand, they taper, the other hand they extended by nine months. they are trying to figure out how to wean the markets off of these unconventional tools. i think what is important is to look at europe more broadly. growth is the starting to pick up, so the currency adjustments they have gone through over the past couple of years is starting to have an impact. of anyre you a buyer

kind of bond in this european market? bob: there are part of the corporate market that i like. does the part that the ecb or does not buy? bob: the are a lot of corporations that are doing well that are industrial companies that should benefit from global inflation. jonathan: i will ask you and unfair question. you started by saying this is not about price, and yet you have to tell clients what is in the portfolio. if they ask you how you price it, and you tell them you do not know. how do you do that? bob: you tried to think what is the proper level for the ecb get to and where should government yields be. i think in all of this, we are feeling this global reflation. the policies we are seeing are progrowth and inflation.

that is good for corporate earnings. credit spreads should continue to come in. that is the one area of the markets, whether it is europe or the u.s. or emerging markets, that should look attractive. david: where is high-yield in all this? bob: high-yield looks awesome. it has done great. i get it. yields are at 6.25%. what has happened is that high-yield has absorbed most of the backup in treasuries in the u.s.. when you think about the earnings recession we have had for most of the year, where top line growth has drifted lower, companies have what bond investors want them to do. they had taken out costs to take care of the bottom line. for 35en doing this

years. i do not remember a time when corporate america has been leaner than it is right now. you have very accommodating monetary policy. you have this undefined pool of the stimulus coming in. we think by the end of the cycle, high-yield could be 300 over. jonathan: to get back to the news really quickly. we have a ton of supply coming from the treasury. is there going to be a big for it in their given where-year-old are trending currently -- where yields are trending currently? bob: i think so. i think the fed has to get to 2% or 3%. i think the treasury curve has to be price. we have come a long way since july. we are getting to the point where backup is starting to attract or money to come in, particularly out of asia and japan when they have limited options. u.s. makes a lot

of sense. jonathan: bob, it is great to have you. thank you. up next, donald trump tweets and stocks move. lockheed martin shares are down after donald trump's tweet about the cost for their f-35 fighter program being out of control. this is bloomberg. ♪

♪ david: this is bloomberg coming to you live from new york. i can david weston. when stocks to watch before market open is lockheed martin. this comes after the president-elect tweeted that their f-35 lighter program and cost was out of control. i do not need a $4.2 billion airplane to fly around in. i do not need that. especially when it is totally out of control. they have lost control of it.

i let them know that i do not want this. i just see things that are so incredible. you look at the f 35 program where hundreds of billions of dollars is being spent. it is out of control. robertwe are joined by from washington. let's talk about how much money has been spent. we have a graph up now. they say about $99 billion has gone to the f-35? >> that is correct. about 99 ilya and dollars of the aboutted $400 billion -- $99 billion of the estimated 400 billion dollars that it was estimated four. it was originally estimated at about half the price when it was first being looked at. david: so it is a two times cost overrun at this point. >> that is about right. as a practical

matter could the president-elect do about this? they cannot cancel the program at this point, can they? >> a live people have described this program as too big to fail. byis going to be purchased several of our military branches. there are a lot of international partners that are going to buy the plane. they will take the first delivery of about 250 aircraft. you could slow it down and reduce your annual cost, but you may actually increase the purchase price of each, individual jet. jonathan: we have an amazing situation where we almost have a chief executive in the white house and maybe the state department as well. we will see a lot more focused on these companies with big government contracts. i have looked at the supply chain function very quickly for

lockheed martin. let me read it out for you. on the top right, you see the big customers for lockheed martin. it is the united states of america at 78%. you could apply this logic to any industrial companies with take projects. how much more focused -- with big government projects. going forward, how much more focused the going to be on these companies? >> i think this might be previewing something. --sent collect donald trump president elect donald trump has promised increases in the defense budget, he may be laying out the groundwork here to say he will not give that money without better cost control in the department. he wants to pay for a lot of things occluding infrastructure and homeland security spending. this may be a way of him saying that maybe the defense budget increase i have talked about what happened so fast until they get there cost -- their costs under control.

jonathan: we have the situation with boeing earlier, and now we have it with lockheed martin where the cover -- where donald trump tweets in the stocks go down. david: as you mentioned, you have the ceo's coming into these positions. it is natural for them to look at cutting costs. coming up, stocks at an all-time high. "bloomberg daybreak-- ,"xt on "bloomberg daybreak futures are going nowhere. they are flat across the board. this is bloomberg. ♪ seeing is believing, and that's why

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visit an xfinity store today and see for yourself. xfinity, the future of awesome. i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. jonathan: from new york, this is "bloomberg daybreak." kicking the trading week off like this. futures going nowhere. equities closing at all-time highs on friday.

that is ahead of the fed decision time. the headline, two days away. switch up the board. treasuries earlier on. it was the first time since october 2014, we trade at 2.49%. weakness at the moment but crude is getting a big pop. a full four percentage points. .he saudi's had verbal stimulus crude is going higher. the dow jones hitting again, another intraday record. has had fivenes straight days of record closes. if it closes at this level it would be another record close. the s&p is a little bit softer here around the record high of 2959. a monster move in banks and industrials and now with oil

stocks, helping to go higher. take a look at these numbers. continental, one of the biggest shale players is up over 6%. in oil services company, up 7%. will they be able to charge more for the rigs? will we see more offshore drilling? in particular, asia, we could see higher oil prices on the opec-non-opec deal. conoco up by 3%. they say they do have the ability for better cash flow without spending more money. so these are the themes. we watched oil and oil shares as we trade in the market. another stock we are watching is viacom. this is after national amusements requested that viacom and their talks. we also hear plans of the interim ceo becoming the ceo.

alex sherman, i'm surprised by this. this lastwed him week. he was quite. was aeryone thought this done deal. alex: in the past week or so we have started to pick up signs that this was becoming more and more unlikely. and i think there is a divide. i think i could explain to why it was becoming more unlikely depending on whose side you come from. people aroundo viacom, what i've learned is that when viacom and cbs met before thanksgiving, they laid out a series of strategies that made it known to cbs that if they were to come forward with an offer, they were going to have to pay up a big premium. viacom was certain that the standalone plan allowed them to reach a share price and evaluation much higher than where the market values it

today. simultaneously, les moonves was not convinced to buy viacom unless he got some semblance of control from sherry redstone. which i have been told has been an ongoing conversation over the last few weeks. the redstone family held firm and said they were not willing to give him control. they didn't want the control diluted. you could add a third thing in there which is perhaps that cbs didn't see viacom's future as rosy as viacom saw it. and lesbian bess could have decided that it was a headache he didn't want to take on. the chicken early if he is not going to control the company. and he has been very clear that he didn't want to stress shareholders. the thing that i find surprising ceo of fire kept

promising it would get better. but now it sounds like it is going to get better. and sherry redstone believed it? she: it is possible that believed it or that she saw it on a road to nowhere. it probably is something in between. where she was at least content to allow viacom to stay independent. and they may have other options at this point. and so may cbs. although people assumed they were not going to combine with viacom was to combine with time warner and that may be off the table now with at&t buying time warner. you with think it would be increasingly unlikely that they could make any sort of counter bid. they are so much smaller than at&t that it seems a bit like a pipe dream. what he has always said he wants is content. he wants to merge with somebody who has content. so that puts the question and, what companies out there might

have a lot of content? alex: they certainly could do .omething with malone john malone has been very public about rolling out content. so i would imagine you are right. although again, you do start to get into control issues with a lot of the content companies. how much control does the redstone family want? they still control cbs. if you say ok, we should start to roll up a line out of lions gate, what is the role in that company? obviously, he would have to be a buyer and a seller so it may not be an impediment but it would be a bigger jump. so as they roll up the smaller companies using their own vehicle, a redstone vehicle, they have to make sure that they didn't have their control diluted. amc is another theoretical candidate out there. isipt is another one that probably looking for scale.

,ut you know, you never know even this merger could come back. but it does seem that right now based on where viacom is trading that this is over and done with for the time being. david: thank you. that was alex sherman. and national amusements has told viacom and cbs to forget about the merger talks. all-time high on the dow. a big headline with tension over the weekend. for down 20,000 because there should be more gains ahead in 2017. the quote within the story, making the stock market great spirits have been around where industrials and financials have had the big spring in their step. joining us now is lisa m ravitch and joe weisenthal.

this looks super bowl us. but we are just a couple of points away. amazondid a quick search. 1999 ande surging from we are quite there yet. why it is different this time? -- you can still buy this in paperback. different about this, the front page, historically? >> 20,000 is not that far from here. we could be there by the end of the week. so the other thing that i find fascinating is not what this says about where the market will go next because it is easy to cherry pick and say it is an indicator. but how much the mentality is associated with an older and richer conservative investor. i've been looking at them since the election and they are saying

to spend on infrastructure and bonds and all that. are suddenlyideas back info. and it may be tells you more more thanbarons crew anything else. which isn't a criticism. these are the strategies that everybody wanted to play out. look for the good deals and the growth stocks. i have to say, the end of yearly balancing guys, two weeks ago. lisa: i think that is what a lot of people are waiting for. we have seen this out of bonds and into stocks pretty consistently since the end of october. alix: really, august in some ways. lisa: i think it does point to a larger feeling where people are suddenly getting safe in u.s. stocks again. in you are seeing this even mutual funds. all of a sudden your people

looking at their statements and their 401(k) plans. are people going to start reallocating their strategies? right now, you do have a relative underweight with stocks in a lot of these portfolios then you have had historically. and of the changes it could be bullish. >> i think the key story of right now is that we keep everything here around a new record high. feeling people are not it because they're underweight in stocks. most people have a lot of on in their portfolio which have been creamed since the summer. especially since the election. so there is a dissonance between the headline, another new high and what people are actually seeing when they look at their daily statements every day. you have to wonder if it will encourage people to be out to chase this rally and make more money. jonathan: ironic we are talking when we have a stock called lockheed martin down by four full percentage points

because of donald trump saying he will cut costs at the white house when he comes in. going forth from here with the industrials and the companies that have rallied, maybe the reality down the road, will it be bullish for them? joe: exactly. everything that people were excited about, deregulation and all that, i never see them tweet about any of that. be a gap between what people expect to see and what people are imagining and what actually he is most focused on. lisa: the analysts i speak to say we will not see an effect on donald trump'sm plans until the beginning of 2018. so right now, people are vying hope. my question is, how much are people looking for signs of inflation in places where they already existed before trump was elected?

prices, for example. tightly correlated to bond yields. bleeding into the inflation expectations all around the world that we now have. and more than a 100% rally since the lows we reached in february. how much is this feeding into areperception that we entering a more inflationary time? rooted in oil prices. that is a big question i have. alix: and a big question is the fed. the second year of a hiking cycle, it could have issues when it comes to stocks. joe: absolutely. and it is worth noting that the market expectations for the fed hike for next year is very much in line with the last set of data we got. everyone knows we got. everyone knows who will probably get a hike at this meeting. will be thestion dots. we are so used to them coming down every time they them. but now we will see if it could fall below the market.

alix: record highs. thank you so much to joe weisenthal and lisa abramowicz. you hate when fed speakers talk. [laughter] alix: exactly. coming up, the midst of higher treasury yields. investors are catching up to the said projection for a rate hike. so more on the market shifting is next. this is bloomberg. ♪

alix: this is "bloomberg daybreak." i'm here in the hewlett-packard enterprise greenroom. joining us, the former philadelphia fed president. jonathan: from new york, this is bloomberg. we're 15 minutes into the session. equities on all-time highs. inching towards 20,000 points. let's dig into the equities markets with abigail doolittle. trump tweets. abigail: one of the big movers is lockheed martin. shares are lower. on pace for the worst day since august 2000 11. so in five years. a big drop here after donald trump did tweet earlier that costs around the f-35 program are out of control and that

billions of dollars could be saved on military purchases after january 20, after he takes the oval office. the question is whether or not this will weigh on the stock. lockheed martin did say that it is 20% of the net sales and we know in the bloomberg if we take this is a longer-term chart of the lockheed martin, you see this uptrend but you also see the stock has recently hit two levels of resistance. first, the record high that produced selling pressure and it is suggested that shares are likely to drop back down to pre-election lows. and there is some reason to dropve that shares may even more in 2017. david: a terrific chart. now, we talk about donald trump's cabinet. the really big news this week is likely to come on wednesday when the fed comes out with the new

decision about monetary policy. markets have already priced in a certain increase in rates but there are a lot of questions about where they are headed next year and how it could forecast where it is headed under donald trump. joining us now is michael collins. welcome back. been talking about everyone expecting the increase. for december. the question is, what happens next year? and does this move at all? or does it just a steady? michael: we have been in this world since the introduction four years ago where they have steadily come down. in fact, they haven't coming down at an accelerated rate in the last year or year and a half. and i think that is going to stop and i think it is a big deal. the markets, for the first time in a while are fully pricing in catching up. so as you've seen before, the markets are online with the fed

expectation, a hike in two days. two next year and as many as three in 2018 and three in 2019. jonathan: what is the significance of a dot plot that could be overtaken by the market? given that everyone says they have to price in fiscal stimulus? the selloff ink bonds is already in oversold condition. so i think it is already overreacting. if it gets above the dot plot, it is a big buying opportunity. so to assume that you will hike once last year and once this year and three times each in the following two years, they think they are going to hike at an accelerated rate. and i think that would be really difficult. to 2% thisey may get cycle before stalling out and cutting after that. alix: at the heart of that question, what has happened to the rate since donald trump was

elected. the higher moves up, the more room they have two hike. the lowered his, they don't have much room. where do you see that? michael: to me, that is a long-term and secular question. our view is may be it is 2%. long-term dotshe are. we think it is close to two. and it is the potential gdp for where it is for the u.s.. and we think it could be under two. and even if you have programs policies and deregulation and fiscal stimulus, i don't know if that changes the potential growth rate on a sustainable basis. so we generally are taking the other side of this scenario. jonathan: one thing that you were talking about is rotation within fixed income. michael: everyone thinks it has been a real selloff in bonds but on the credit side, it has been a strong rally that we have seen

and u.s. credit. so u.s. corporate bonds are hitting new lows here. high yield bonds have snapped titers since the election. widening about 50 basis points. the titans 30 basis points last week alone. so that is wrapping tighter and then you look around the world and other sectors, municipal bonds have really underperformed. and i believe that is more a function of retail investors panicking with emerging market getting clobbered. and if you look at european bonds, those spreads have widened. so there are some relative value opportunities that we are looking into in the portfolio. alix: the question is, how much more of that rally is there? when you have that coming back under trump, it will make an even bigger rally? michael: there are two sides well, three. the fundamentals, arguably, our improving a little bit as we scale with corporate earnings.

the technicals are going to be a positive story, i think. more supply of treasury issuance and presumably, less supply or less net supply of the private sector across the board. and then you get to valuations. the wider spread comes in and there are a lot of high yield bonds out there that have annual spreads. 250 basis point over treasuries and they are starting up to look a little less attractive. this morning is that the non-commodity part of the market now has a higher spread than the commodities sector. which is a flip-flop from what we saw a earlier. what have you been selling? we have been reducing some exposure to the loans.ality, high yield bank yields. they are the darling of the market because they are a rate but a lot of them are trading well above par. and bank loans are like mortgages.

we have seen repricing start to accelerate here, where a company could pick up the phone and lower the coupon you get on a bank loan. so we are worried about being on the other side of that so that is something we're looking at. emerging markets are being really selective. but we do like a lot of different sectors. jonathan: great to have you with us, michael collins. we are counting you down to a fed decision on bloomberg tv and radio. we will have special coverage on wednesday beginning at 1:00 p.m. eastern time. the decision will cross at 2:00 p.m. have a look ahead into the big events from this coming week. this is bloomberg. ♪

jonathan: this is "bloomberg daybreak." we kick off the trading week like this. 25 minutes into the session.

all time highs on the dow and s&p 500. theheadline, yields at october 2014 high. andre of three basis points crude is going higher as saudi arabia gets involved with verbal stimulus. tome, the highlight has been see the unpredictability of what is coming down the pipes. that will be the trump administration. lockheed martin down on the back of a tweet from the president-elect. on the f-35 program. saying costs are out of control. billions of dollars will be saved after january 20. that i'm and other interested in. is it just the military defense contract? well this on the heels of the belling incident. so this isn't just a one off. alix: it isn't a one off. my question is, if you get a ceo where these house, companies going to sell their products.

you also could have that oversight as well. david: one person you will not be happy is israel. one of the principal allies because they are in the contractor. alix: and the s&p defense sector is off by 1.3% though it does spread when these tweets go live. jonathan: and it is just the prospect of having him there but in the state department as well. this is fascinating. whether he could get confirmed is one thing. but this is a man who knows how to deal a lot of different countries. maybe that is a positive? david: not just russia. yvette is a positive. this is bloomberg. ♪

>> it is 10:00 a.m. in new york. i am julie hyman. : welcome to "bloomberg markets.

julie: we take you from new york to london to milan in the next hour. plus, cover stories out of saudi arabia and russia. behind's is surging to level since july 2015. saudi arabia signals it will cut out that more than previously thought. mark: donald trump targets lockheed martin, saying that the u.s. government is overpaying for the f-35's and costs are out of control. how much could this impact lockheed martin stocks? julie: and we are live in italy as the prime minister is replaced. first on the agenda is fixing the nation's troubled banks. 30 minutes now into the trading day in the u.s.. abigail doolittle has the latest. is