27. i'm alix steel alongside david weston. jonathan ferro is off today. dow jones and s&p futures flat. .1% almost higher by wiping out all of the losses for the year. u.k. markets are closed for the holiday. the story of a stronger dollar continues. around the highest level in over a decade. up and oiling higher. david: more cash for monti. monte dei paschi needs 18 , not the 5 billion bid failed to get from investors next week. no holiday for trump tweets. the president-elect taking to social media to say the u.n.

doesn't really do anything. democrats are planning to challenge him on tax reform. looking back on a year of historic surprises and forward to a no less challenging 2017 when it comes to markets. need monte dei paschi's for cash. what did we learn over the last 24 hours? >> good morning. we've last christmas with the fund set up by the government and we came back from the short break with the new issue for the bank. almost 4 billion extra required to cover the needs of the bank. sent to the letter

bank yesterday evening to the italian lender. alix: does monte dei paschi have any word on how they will get that extra 3 billion? it will be mostly coming from the government. there were reports earlier today in local media talking about 6 billion euros coming from the state fund only to cover the capital needs so the majority of that would still be coming from public money. monte dei paschi has yet to or whaton a new plan the extra capital funding need will mean for the lender. sharesonte dei paschi have been suspended when it comes to trading. what needs to happen in the next few days? we expect the european central bank to officially state

its requirements for the bank. monte dei paschi's response and for investors to come back to the desk. right now everything is quiet between the holidays christmas and new year's eve and shares are still suspended. things will change when liquidity comes back to the market. the question is insolvency, liquidity. where is the line? david: christine harper is with us now. thanks for being with us. that's the question. at what point does a liquidity problem become a solvency problem? >> it was one we experienced during the financial crisis here in the u.s. a lot of people argue that liquidityroblem was

and they shouldn't have to be resolved the way they did. it is key that the italian regulators saying that monte dei paschi is solvent. as long as they are determined to be solvent they can get state aid. that enables the government to prop them up. the liquidity issue can lead to insolvency if they don't get -- if depositors aren't reassured soon they will create a bigger problem and you have assets that you can't sell and not enough money to support it. david: is a larger problem than just monte dei paschi. we italian parliament is getting worse in terms of nonperforming loans. blue line at the top is going up. that's not sustainable over the

long term. looking at some of the analysis that has been done of the nonperforming loans that have sold and what kind of capital hit they have taken on them. the needs of the italian banking 55 billioncloser to the 20 billion the italian state has promised to provide. that thea lot of doubt money that is set aside is going to be sufficient. it's also deutsche bank, credit suisse and barclays. take us through that. barclays ended up getting sued by the u.s. government in a very surprising development instead of settling. about how someone who used to work for jpmorgan is taking on a fight that even

jamie dimon wasn't willing to take with the justice department. aey may believe they have better chance with the changing administration to prevail in that fight. bank of america was successful. we will see how that plays out. deutsche bank and credit suisse settled the capital hit they are taking as a result. it seems to be manageable. we have news that capital requirements from the ecb have been cut to 9.5% from what it was this year and that is a trend happening across all the banks in europe except the ecb is lowering how much capital they need. doj: why did the geode -- come to these banks with this number? barclaysher than what really wanted. why can the doj do that when banks in the u.s. had more bad loans and didn't get hit? there are reports that in all

of these negotiations there were offers and counter offers. these settlements are not a science. they are more of an art. both sides come and negotiate. of the jpmorgan settlement there was speculation that the original offer made by the doj was much higher than what jpmorgan originally paid. david: this is what i found interesting. -- what is this based on? they said that the number we want. it will be interesting to see. there's definitely a changing point of view with the ecb lowering the capital requirements. the trend we have seen of increased regulation tougher on banks seems to be starting to soften. the doj may take a more lenient line on these fines.

even mario draghi in europe has talked about how the biggest risk now to the banks is that they can't make profits rather than not having enough capital. david: now let's get an update on what's making headlines. we go to taylor riggs. president-elect donald trump is questioning the effectiveness of the united nations. in a tweet he wrote that the yuan has great potential but it has become a club for people to have a good time. the remarks come days after the yuan voted to condemn israeli settlements in the east bank and jerusalem. russia has found one of the flight recorders from the military plane that crashed into the black sea. all 92 people on board were killed. the crash was unlikely to have been caused by terrorism. abe becomes the first japanese leader to visit the memorial to american sailors and marines killed at pearl harbor.

he began his visit to hawaii by laying a wreath at a war ceremony near honolulu. he will be joined by president obama. i'm taylor riggs. this is bloomberg. volume very light. equity futures flat. you have some individual movers. toshiba is one of them. had the biggest fall in over a year. at the crest is the write-down of its nuclear power asset that could reach $4.3 billion. area of its business represented about 30% of its revenue for the year. huge hit for the company. spinoff the star wars very cool. $96 million. disney has three of the top four u.s. films.

biogen up in premarket as well. that treats spinal muscular actress we finally got fda approval. looking for a replacement on its older ms drug. sales estimates could exceed $1 billion by 2020. $60 million milestone payment. big boost for both of these stocks. david: it may have been a holiday weekend but the president didn't take any time off from his twitter account. what he had to say about the u.n., president obama and christmas shopping. not to mention the stock market. that's next. this is bloomberg. ♪

alix: this is bloomberg daybreak. i'm alix steel. about two hours to the open in the u.s. black features across the board. the stoxx 600 with again. volume quite like in the fx market. you have a stronger dollar weaker yen. oil still up by .4%. president-elect donald trump was busy over the holiday weekend tweeting his views on issues from the u.n. vote on israel to how he would have done if he had run against barack obama. to quote him, the world was gloomy before i won.

there is no hope. now christmas spending is up over $1 trillion. this is really good fun to read these things. one of the things i thought is apparent is the transition between barack obama and donald trump not necessarily going to be a smooth one. >> publicly perhaps it's not going to be a smooth one. there have in many who have been surprised in washington with just how peaceful the meetings have gone between the outgoing president obama and president-elect trump. going tok trump is continue to use twitter as a mechanism to communicate with the public. wayink he views this as a that is able to communicate in a way that is unfiltered and fits with his political brand. we have also seen him use this on some quite serious issues

ranging from the economy, things boeing as welld as foreign policy with taiwan and china. over the weekend we saw a continuation of that even though he was supposedly getting some down time. david: on the u.n. vote about settlements in the west bank with israel. whatever peace there may be between barack obama and donald trump behind the scenes not to be a lot in congress. there's a report out of what congressional democrats are planning with respect to his tax plan. take us through that. >> first and foremost the democrats are in need to have some type of unified opposition heading into the first 100 days because the trumpet thenistration as well as ryan leadership in the house have said publicly that they are looking to get corporate tax reform at least passed very soon

within the early timing of the trumpet administration. the democrats have said they feel this would be good only for big businesses. larger financial institutions and smaller business. -- hurt smaller business. trump was able to get into office by writing that populist wave and now he faces a situation with an opposition party in the u.s. with the democrats who are going to try to capture a lot of that momentum that came from the bernie sanders movement and of course the elizabeth warren wing of the democratic party. look for them to have a stronger voice heading into that. there is no super majority for republicans in the senate. they do have the majority in both chambers of congress.

it will be interesting to watch that back-and-forth. some of the trump transition officials have told me the outreach effort to a lot of these more moderate democrats in the senate in particular is already underway. thank you, kevin cirilli. the big question is how much optimism is pricing into the market. take a look at the bloomberg. the big rise since the u.s. election up by about x percent. is hsbc head of fx strategy. what is priced in? it was an absolute game changer for the dollar. this is the problem now because it feels like a lot is priced in. it feels like we have taken all of the potentially good hits

and wee trumpet agenda have sidelined to any talk about detection is the more immigration the. we have to see how that plays out in these first 100 days. comments, we your have to remember there is an opposition. trump is used to getting everything he wants but it may not come quite so easily. how quickly can he deliver on those campaign promises and will the markets have patience for this? david: what are the factors that would affect the u.s. dollar the most? to me its delivery. trump has made a number of promises. the market has chosen to believe which is fine. now he has to deliver relatively quickly. any sign that he can't get his

agenda through, they will have to get that repriced. alix: we keep comparing the dollar rally and trump's stimulus with reagan and bush. they are very different dollar reactions. this is a normalized view of what the dollar did under reagan. the blue line is bush. the purple line is what has happened since trump. it seems like the market is focusing on a more reaganesque type. we are at full employment and in a very different situation with respect to debt. where's the money going to come from? >> this is an issue for the republican party. a lot of what the republican party like it is less government. that's the agenda of cutting taxes. i don't like the idea of a bigger deficit. you have to reconcile where are

the spending cuts going to come if any? a lot has to have been through congress from the white house and all of that challenges some of the optimism in this dollar prices. keep reading on dollar scarcity. there's not enough funding dollars. what is that? >> we get this all the time. squeeze weany real have seen banks have been willing to step up with dollar liquidity. there is cooperation with central banks to get the dollar out there. give them the opportunity to shuffle the market about. the central bank reaction function is completely different to how it was precrisis. they are ready to add dollars if there is a painful squeeze coming through. david: i want to talk about the yuan. now it is coming back into the

with reports of substantial intervention. you have a great chart. when you have so much on shore trading volume and the currency declines you are seeing a lot more capital outflows. the worry is how does that filter through the rest of the market. david: and they have been using reserves to try to reverse this trend. how do you look at the yuan going forward? >> this is the struggle for the chinese authorities. you are looking at it against a dollar that is rallying against every currency in the world. it is natural that it should rally against the chinese currency as well. policy makers in china will try the constant recalibration. we are at the key psychological level. they will to control that kind

of flow. this time of year is where we get a lot of corporate demand for foreign exchange. are we learning ourselves up for another excitable january? who knows. maintain might not that 6.5% growth rate. they are trying to curtail the borrowing they have been doing and grow their economy at a faster pace. >> i feel sympathy for the chinese policymakers. when the economy was doing ok we worried about that. then the priority was let's get the cycle reinvigorated. they have done that. they have underpinned the chinese economy. in a way debt is a luxury worry. i think that's ok for the currency as well. alix: what is your strongest 2017 trade? >> sterling. nothing has changed in the u.k. yet.

110 is our end of the year forecast for cable. one of my high conviction trades. still confident. still grounding lower. david: the queen wants to know what the plan is for brexit. >> i want to know what the plan is for brexit. oil extending its longest winning streak in four months. the energy companies with the most to lose. we will break it down next. this is bloomberg. ♪

alix: this is bloomberg daybreak. i'm alix steel. about two hours from the open in the u.s.. .1%.ow jones up not even

but now we are in the green. the stoxx 600 is up. like trading volume down 75% from its 20 day average. in terms of the fx market it is still the story of a stronger dollar. mild selloff in the bond market and crude grinding higher. it is a holiday week after all. coming up, when brian moynihan took over bank of america six years ago he had a lot to clean up. how much is left to do? that's next. this is bloomberg. ♪ wow, x1 has netflix?

hey, drop a beat. ♪ show me orange is the new black ♪ ♪ wait, no, bloodline ♪ how about bojack, luke cage ♪ oh, dj tanner maybe show me lilyhammer ♪ ♪ stranger things, marseille, the fall ♪ ♪ in the same place as my basketball? ♪ ♪ narcos, fearless, cooked ♪ the crown, marco polo, lost and found ♪

♪ grace and frankie, hemlock grove, season one of...! ♪ show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. david: this is bloomberg. i'm david weston. here's what you need to know at this hour.

the european central bank monte dei paschi needs a .8 billion euros. regulators say the bank remains solvent. president-elect taking to social media to say the u.n. doesn't really do anything and that he would have eaten president obama if they had gone head-to-head. democrats are planning to challenge him on tax reform. looking back on a year of that is whatrises you need to know at this hour. alix: u.s. equity futures relatively flat. we were lower previously in the session. you have health care and technology leading the way. materials and financials flat in europe. in the fx market the story

continues of a stronger dollar. bloomberg dollar spot index at the highest level in over a decade. you have yields in the u.s. up by one basis point and crude continuing to move its way higher. off the highs of the session as the dollar continues to grow stronger. david: italian banks are in the news today. monte dei paschi's problems may be worse than we thought. nonperforming loans for all italian banks are high and growing. u.s. banks weren't always in such strong shape. we talks exclusively with brian moynihan about what he had to do to clean up his bank. where he is in the process and what comes next.

>> when i interviewed for the i had a list of all of the things that didn't fit with the core franchise. that came through a lot of the enterprises we acquired. and we needed to deal with overtime. i showed the board and the idea was that if we took the risk out of those businesses and the complexity you could tighten the company down. we went from $2.7 trillion to about 2.2. we sold 60 operating divisions. we went from credit card operations in five or six countries down to one country. all of it was based on the principle that our basic business model was we have

businesses which are global. large companies are global beings and we have to be around the world to serve them well. it is done now. we are largely done with it. it has taken a long time to finish off. us toactually illegal for buy a depository institutions in the united states. it has nothing to do with dodd-frank. it makes my life pretty easy because i never have to worry about that. to grow a banking business you have to be organic. we will open branches in other cities to round out market that we weren't in. it's why we built new branches in places like new york. all organic. more financial advisors. more u.s. trust private bankers.

bankers.ercial more people serving customers and more branches. we can't buy anything. and allout a company the acquisitions that arrive at the scene and how easy my job is because i can't do it. i have to think of every day how to make the company better organically. it's a huge company. is legal so it's a very easy question to answer. david: he obviously is a creature of the time he came into the bank. merrill lynch problems. his job is been scaling back and breaking this more of a basic bank that fits with what regulators wanted to accomplish. now he's not interested in adventures with the bank. if you do back off any of the regulation are these banks

going to go crazy and go back to risky lending or will the stringent requirements that have already been changed stay? it seems his appetite is much less. david: he doesn't have the risk. he can't make more money than just traditional lending. alix: he doesn't have to pay as much out as yield end up rising. the largest dollar deposit taking institution in the world and one third of them bear no use whatsoever. they get free use of those dollars. alix: their payout ratio is so much less so any roof they do is going to be better than they think. their stock is up over 30% this year. alix: we will turn to oil. longest winning streak in over four months posted by opec

production cuts. when will u.s. shale players respond and does that negate any kind of production cut? out theo texas to check hottest shale region in the u.s. and visited pioneer natural resources. to see how much money is flowing into the area and how much production could grow. this is 75,000 square miles of some of the best oil in the u.s. on top of 75 barrels of oil in texas where land owners to go for $50,000 a pop. >> it's a product of how productive these zones are. alix: energy and private equity companies are clamoring to enter the permian.

you want to see us in the market paying those exorbitant prices. alix: pioneer has been in the permian since the 70's and has amassed over 300,000 acres. >> we've been working for decades. we paid little to nothing for the land we are standing on. other people may be spending in excess of $40,000 an acre to do what we are doing every day. alix: despite oil price uncertainty pioneer is adding 20 wells for a total of 230 using only 17 rigs. wellxpected return on each is between 50% and 60%. >> we won't make much of a return at $20. when you are at $40 we make a pretty excellent return. alix: that is attracting big

money. >> we are starting to see record prices. ist has driven that change improvements in the resource. can parts of the play achieve $60,000 to $70,000 per acre. the increase in activity creates other concerns. cost inflation. >> re-think prices will rise approximately 20%. we think we will see a fourfold increase in demand. our biggest concern is not really going to be the production. it's going to be the service cost inflation. alix: pioneer is and concern. >> all of this equipment is painted pioneer green because we own that equipment. pioneerhe guys work for

. we are insulating from the cost increases as activity starts to increase. have aioneer could problem moving massive amounts of oil out of the region. companiesthe need for to build new green filled pipes. that will create a long-term solution for all the crude we are seeing coming out of the basin. alix: risks are not deterring pioneer. >> this is texas. we will build pipelines. here we are at 2 million barrels a day. we could easily see 5 million barrels a day in the next 10 years. to be the big producing area of the united states for many decades to come. it was a truly amazing trip. to get an idea of how much money is moving into the permian. white line is the permian

rig count. this was the matt: when it came to shale just a few years ago. look at the increase in the permian. this is where the money is going into. david: he said he could break even at $20. wti today is 53 dollars. if the opec deal really holds and the price sustains what do they do? all of the shale people i have talked to, their plans are set. they are not necessarily changing their plan. they are not adding more rigs next year because of what opec did. if you see 60 over the next year is that change their horizon? no one actually knows. kind of shale response offset any possible production cut from opec? emphasizing the

importance of pipelines. that's where a pump -- trumpet administration could help them. alix: they are looking at the potential differential blowout when it comes to permian. a lot of oil is going to be coming out. you don't have the pipelines to get it out. you will have a huge blowout and oil prices could fall a lot. can get a lot more pipelines being built very quickly. david: donald trump has indicated he really wants to help fossil fuels. we talked about banks and oil. now we have to talk about retail. next, it's the most wonderful time of the year from retailers. at least it is supposed to be. how are they doing? we check in on retail next. this is bloomberg. ♪

alix: mrs. bloomberg daybreak. i'm taylor riggs. coming up in the next hour, michael purvis. this is bloomberg. i'm david westin. markets will be waiting with great expectation for retail shopping numbers for the holiday season. to give us an update on where things appear to be headed, we are joined by a retail expert from bloomberg intelligence. she comes to us from washington. last friday.ou had some warning indications about retail sales. how big a sense to we have on how it's going? fromrough the data we had december 10 it seems there was a significant slowdown, about 5% from the same period last year

in global spending. they have to detail their promotions to drive sales for the rest of the holiday and we are going into the after holiday period where people are expecting a lot of discounts. their margins are likely to come in weaker than people were expecting. david: do we have any anecdotal information about what has happened since the 10th? store traffic likely continues to be very weak. i was recently at the mall myself doing store checks. it was easy to find parking. there wasn't a significant line at any stores. there were a lot of signs for promotions. a couple of retailers that look like they are going to move into going out of business. there was a lot of discounting. a lot of spending is shifting to online.

we will have to see when the data comes out. predominantly people have been moving their shopping to online. consumer confidence is at its highest level since 2004. is the softness you are seeing in foot traffic due to strength in online rather than a reflection of the weaker consumer? >> i think it's a little bit of both. i think the online business is very strong. november retail sales came in a little bit weaker. seeing hesitancy from people to spend unless they are getting a good deal. i don't think people are spending unless they think they are getting a good deal. people are also unsure as to what the new administration's policies will mean for their pocketbook.

we might see some caution until people understand what the policies will be. david: is an online shop the same as an in-store shopper? with online you have price discovery. it is much more difficult when you go to brick-and-mortar. it doesme sense especially when everyone offers lower threshold for shipping. once you meet the expectation for shipping you usually can buy what you need. little bit of the impulse buy or you are on your way to the checkout and you pick something up. it is harder to have that experience online than in store. alix: taking a look at the foot traffic, is there a store that's doing it right this holiday season? space, theyrdline are not mall retailers, but i

would say the one retailer that is probably doing very well would be ulta. beauty continues to be a very strong category. online andtheir in-store marketing is very strong. they have great products. they have a lot of newness in the store. bebe stores would be doing really well. beauty stores would be doing really well. david: time for other stories making headlines at this hour. here's taylor riggs. >> tesla motors and panasonic will start making solar cells and modules next year. panasonic will invest more than a quarter billion dollars in the project. the companies are looking at a lithium-ion factory in nevada to make energy for electric cars. for the next month consumer prices in japan have fallen. the primary gauge of inflation

fell .4% in november. that underscores the challenge the central bank faces getting prices to rise. labor unions in the u.s. are bracing for tough times andre trumpet administration. employees international union is planning for a 30% budget cut over the next year according to an internal memo. campaigned to raise the minimum wage to $15 an hour. that's your bloomberg business flash. david: time for bloomberg trends. we take a look at the top stories terminal users are reading on the bloomberg right now. mine is a fascinating and counterintuitive piece called outrage over the economy doesn't exchange surging global populism. very interesting because there's a lot of explanation of donald trump and the rise of populism across western europe

as being an economic issue. they are pointing out that if you look at unemployment, it's going down. if you look at trade, trade is going down. here is really populism is not so much explained by a lot of economic factors as by social factors. people are concerned about security, immigration. and there are social factors. this really drives into donald trump coming in. what does he need to address? the economics may not be the answer to the people who are disaffected. alix: when we talk about the stimulus coming from trump, the question being do we actually need the stimulus? janet yellen saying something very similar. we may not need that if we are at near full employment. you might not need all this money coming in to the economy. david: it could even be counterproductive. andwall with mexico

policing immigration and terrorist threats, there might be a premium on that instead of the economic. alix: i'm talking about oil. it's a great piece over the last 48 hours talking about the shale haunting opec is oil continues to rally in 2017. we talked about this in relation to pioneer. analysts expect the average price to be at $58 next year. you need 62 to really help opec. what happens to shale if we wind up getting the prices? this chart takes a look at the rig count and u.s. oil production. we are now producing as much oil as we were two years ago in the u.s. how much more can this increase is oil prices continue to rise? >> in your interview he said you go from 2 million barrels a day to 5 million barrels.

that's a big increase. the question is when. is it going to happen next year or is it a 2018 story? david: inputs so much pressure on saudi arabia. trying desperately to get the price up. it may not be able to because of shale. up, a closer look at what happened in 2016 in china and what's ahead for the country and its currency in 2017. this is bloomberg david:. . ♪

alix: in off the charts this week we will be looking at the big themes of 2016 and how they are set up for the beginning of 2017. today we will focus on china and

the u.n. this blue line is the u.n. versus its trading partners. you can really see the decline in the u.n. here. beene flipside it has rising against the basket of its trading partners and that's a real dilemma for china. it is weaker when it comes to dollar but stronger when it comes to its peers. what are officials going to do about it? part of the problem has been capital outflows. the white bars are estimated capital outflows. the yellow line is the monthly foreign exchange reserve. you can see the hit the reserve has been taking as capital outflow picks up. 275 billion next of the country throughu.n. payments october. does it get worse? we are seeing trading volume really pick up in the u.n.

at the beginning of the year chinese citizens are able to convert their currency into dollars. that's a huge risk for the global markets heading into 2017. the bond selloff has not spared china at all. yields are spiking and that is reverberating into the corporate bond market as well. premiums for aaa corporate credit are soaring. what kind of heat is the government going to feel in 2017? david: we have to focus on china again. coming up, michael purvis. that's next. this is bloomberg. ♪

alix: welcome to bloomberg today

barrick. jonathan ferro is off today. a half before and the open in the u.s.. equity futures are totally flat area it's been tight trading throughout the morning. techave health care and lead in the way there. it's very thin volume all across europe anywhere you look. , the story iset of the stronger dollar. you have dollar-yen basically flat and a weaker yen reverberating through most of you -- asia. crude continue his to grind higher. the regulatorsh, say the bank remains solvent. no holiday for trump.

president-elect says the u.n. doesn't really do anything and that he would have beaten president obama if they had gone head-to-head. democrats are planning to challenge him on tax reform. looking back on a year of his storks surprises in what promises to be no less of a challenging 2017. if that's what you need to know. donald trump took to twitter over the holiday weekend, touching on the u.n. and how gloomy the world was before he won. quote joining us now from washington is our political reporter. i'm tempted to say it's a wonderful life. there is a lot of analogies being drawn by some people to ronald reagan. this feels more like fdr.

he had to persuade the country that it was going to be ok. this is the ultimate optimist in the last 30 years. >> that's a good point. i would note that i think the president elects policy in regard to infrastructure lend itself more to the fdr comparison then reagan. there are some similarity is between reagan and donald trump are in it this is the bottom line. he was criticized as we all over taking a very abrasive tone of on the campaign trail. i guess this is his way of trying to be more hopeful. you look at that tweet and some of the notions that holiday spending is $1 trillion. i don't think it's quite at $1 trillion. the market reaction has been largely positive as he has

announced takes for his cabinet. the market see that as a signal that the deregulatory policies will be good for business. david: you said this was helpful. to quote one of his rivals, hope is not a strategy. how realistic is it for him to get these things done. if we have a practice group of republicans who are concerned about spending. even within his own cabinet, they have the ultimate deficit hawk. kevin: it's going to be difficult, particularly on the budget. a lot of the people i am speaking with predict a budget debt limit crisis around march. they could use extraordinary measures beyond that. days, what first 100 he is going to be dealing with from a domestic dan point is trying to get conservatives on

board with a budget plan and also infrastructure spending. a lot of people oppose that. then you get into things like corporate tax reform. democrats are plotting to stop that. there to be apate health care battle. assertion on the campaign trail that he would repeal in replace obamacare is something that a lot of people not only in republican circles but in the financial circles are going to be looking at as well. a lot is going to happen that first 100 days. i'm sure we will get some good tweets from president trump after january 20. david: kevin, thanks so much. he is reporting today from washington. look we're going to take a at what to expect in 2017. with us is michael purvis.

if the last six weeks have been what doesnd hope, 2017 i should do for us? michael: it will be the show me your. we trap -- priced a lot of stuff from the trump victory. as we get past inauguration we're going to -- if you step back for a minute, the market has been defined by monetary stimulus. that is administered iv central itks are in a they can do unilaterally without any checks and balances. about,ansition is whether you define it as corporate tax really for tax relief or it requires a more complicated set of negotiations effectively. if you go back to some of the former taxes during the reagan

years, it took two years to go from concept to reality. we don't know how quickly -- i think the market has been pricing in a very aggressive pace at which this will come. into quarter one and quarter to, it looks like things are going to stall and that's what you will's dark to see a choppiness to the market. david: i would like to ask you about volatility. whatever is going on, there is an air that a lot of changes coming yet the market does not ricin volatility? of the market is going to go up. it's interesting because if you look across fx volatility and treasury volatility, a lot of those are up 50%. every equity is down since the election.

that's because of the general risk on and things are not so bad. more often than not, if you have high asset falls, that will feed into the equity fall. that the fix is highly correlated to the 10 year treasury yield is going to be. it's a matter of time until that next surface comes up. i don't think it has to mean we are in the 40 range. the floor of the vix will come higher with that said foot coming out of the mud. alix: this any kind of stimulus -- stimulus create earnings growth. at the same time, you have multiple multiples for the s&p. what happens to those two elements? title: my framework for understanding where it's going to go, i do a pro forma on earnings.

if hillary was elected, i look at the base pay and what the revenues and earnings would be. we do an adjustment. i give a boost toward nominal gdp and real gdp. i think i am pretty generous there. that i do offsets for a stronger dollar. i also do a boost for the yield for bank earnings. when you take all of that stuff and you wash it all out, you don't have the material to pick up any earnings over the next couple of years. the big kahuna is corporate tax relief. take up s&pdoes earnings. david: you have to look at earnings and the price-to-earnings ratio. it's a combination of the two. where do you projected going into thousand 17? it's fairly high right now. michael: we have a higher cost of debt capital and the yield

environment and we have higher you areisk premium, going to discount your future cash flow. when you wash it all out, i take it down about one point. in my price targets, i am at 18 times forward. i would probably be at 19 times forward had hillary been elected. but with slightly lower earnings. alix: what is your strongest conviction? michael: it's very hard to have high conviction right now. stepping out of the u.s., i would say the yen is going to weaken. upt will lift the u.k. another 9% i am bullish on u.s. equities. the ratio is going to come down and volatility is going to come up. we will get a much more robust environment going forward. alix: that's pretty much it when

it comes to conviction. thank you so much. it's good to see you. david: now let's get an update of what's making headlines. we go to taylor riggs with first word news. taylor: russia has found one of the flight recorders from that military plane that crashed into the black sea. all 92 people were killed. the victims included a military chorus. the crash was unlikely to have been caused by terrorism. benjamin netanyahu's critics are coming out in force. opponents joined him in attacking the united nations security council for condemning israeli settlements. now they are harming him on laming the country standing. donald trump's the effectiveness of the united nations. he wrote that the u.n. has great potential, but it has become a club for people to have a good time. his remarks came after

condemning israel. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. i am taylor riggs. alix: thank you so much. equity futures are flat although they were negative earlier this session. part of that is some precious metals stock. we have gold up 2%. you've got silver and gold prices moving higher into the end of the year. silver is having its best day in over three weeks. gold is also up the most in a month. also taking look here at tesla. this is like a stealth rally. it is gaining 5% in each of the last three weeks. tesla and panasonic will make solar panels in buffalo. production will begin the summer. no word yet on the cost tesla will have to put out to make them. they were partners in that nevada battery factory as well.

toshiba had the biggest one-day fall in over a year. at one point it was down 16%. it is going to have to write down its nuclear power assets. it could reach as much as several will dollars. some of the cost could be as as as $4.3 billion. david: china is back in the news with the president saying we should be prepared for slower growth rate of what does china look like for 2017 and what does it mean for global markets? that is next. this is bloomberg. ♪

alix: this is bloomberg daybreak.

this is where we stand on the markets. you have volume extraordinarily light across europe. dow jones is relatively flat and the dollar is stronger. yields are backing up here in the u.s.. it is a calm in the market. one area where there is not a lot of call right now has to do with china. take a look at the bloomberg here. this is the you wanted trading volume and the blue line is the spot. change ine the trading volume. more cap or outflow. how much of a risk is this? joining us is a strategist. it's good to see you. that is the question. how much will this play a role in the first quarter? >> thank you for having me on. i think this is probably trillion dollar question for next year.

it depends on what does donald trump do once he is in power. we have seen all of the other elements coming together with a very anti-china pro tariff policy. all of these factors could put so much pressure on the dollar that the yuan could repay. -- this makes the risk increasing over the years. it feels like next year could be a tipping point. alix: what could that level be? how much worse can it get? the shoes you were in of the chinese government and you've got this unknown quantity coming in. he is been very anti-china. what do you do? what they have usually done is put pressure on the u.s. president to see what he is going to do. if you look at where it's seeing now, you can easily

eight as opposed to seven. that type of thing would send a very strong message and increase a lot of competitiveness in the chinese economy that it has been losing because of the strong dollar. what that doesn't him the other side is it puts pressure on the internal elements of the chinese government. this is the balance china is having to play. does it allow the you want to devalue? i think liquidity is more valuable than liquidity at the moment. try to keep control of the economy and keep things going. david: you mentioned the border tax adjustment. said thereaign, he was going to be a tariff against china. now it's evolved somewhat into this border tax adjustment, which is like a vat. you area credit when

exporting and there is a charge when you come in. how would that affect the relationship to the dollar? >> the key thing is that if you adjustment,r tax there are lots of different factors which could collapse the u.s. trade deficit. is --hat would do in turn what we have seen so far is a border tax adjustment reflationary for the united states. the rate is going to go higher and that means the dollar goes further. you could see 15% on the dollar easily. suddenly, eight doesn't seem so ridiculous. forgetting about the dollar appreciation of the last few years. alix: if we do and up getting 28, is the market set for that? >> it is not prepped for that.

wait-and-see, we are not sure what's going to happen. very positive elements of the market. but we have seen is in some asian markets you start to see a few jitters here and there. if china decides to go aggressively and start to use devaluation elements, people will look at protection and options. this could be a shocking factor. if it's going to happen, next year is the time it's going to happen. what does donald trump do? china starts negotiations aggressively. the probability is increasing every single day. david: put together with this discussion about trade and what china is doing internally to take credit out of the market, the president said don't be

concerned we go below 6.5% growth. when you put that together with trade, what is the effect there? real gdpr but the elements of china. the key thing is nominal growth. the key thing is these trade surpluses to refinance. what we have seen recently is the little bit of deleveraging because we have seen this industrial commodity index. a little bit of inflation, let's face it, the social financing has increased this year. total debt has increased. they are not deleveraging. what they are doing is employing every single tool in their arsenal to kick this can down the road while they gain more and more control over the economy of politics in the region. time, those same

costs are rising extremely. take a look at the bloomberg here. this is the yield here in china. at what point does that become prohibitive in terms of credit growth? >> if you take it back a bit further, it's not that bad. what we see is a repricing of yields across the board and nation countries due to the u.s. impact. there has to be some kind of follow through there. china still has other options on the table. they are looking at debt to equity financing and they approved and issuance. they are leaders in financial is asian of the economy. they are years ahead of everyone at an equivalent stage. which aspects of the economy can they pull the lever. for me right now, keeping this

machine going is far greater than the current instability/inflation. these reforms in terms of anticorruption measures are going to get a lot more power. this whole thing of china versus the u.s., it's not something that donald trump is bringing in. it's something we've seen for the last four years. it is accelerating things. they are the two superpowers competing against each other. two time ethically opposed forces that will have to find a new equilibrium. alix: it was great talking to you. great insight. david: the big news out of europe today comes from italy. we check in on where things stand and what it means for those private bondholders. that is next. this is bloomberg. ♪

alix: this is bloomberg. the ecb says they need to alter the balance sheet. we bring in rome. saw -- more than what we thought they were going to give. what is next? >> high. we saw them failing to raise 5 billion euros and we come back after christmas finding out it actually needed to raise double the demand to almost 9 billion. what happens next is a bit of a? . for much of passkey and the sector, there was a state fund of 20 billion that was approved three days ago.

according to local media, it to 6.5 billion for monte dei paschi only. alix: is that deadline real? going to hold at the moment. the discussion between monte paschi and the ecb is still ongoing. lettersre two acknowledged by the italian bank yesterday evening. there is something going on. alix: we are going to have to leave it there. we will be back.

alix: here's where we stand in the market one hour before it opens. volume is light in europe.

the fx market, the dollar moves higher against the yen. the yen is off by .2%. is rising higher yet again, up .5%. david: more cash for monti. monte paschi needs eight million euros it needs from private investors. no holiday for trump tweets. he took to social media to save the u.n. it doesn't really do anything and he would of beaten president obama if they had gone head-to-head. democrats are going to challenge him on tax reform. year ofback on a historic surprises and forward what promises to be no less of a challenging it 2017 when it comes to markets. that's what you need to know at this hour. alix: michael is head of the

high-yield credit strategy. is looking at high-yield. it has been a killer year for high-yield. we have that chart on the terminal. is this going to be the same? michael: this year was a phenomenal year. there was a perfect set of circumstances that led to a great return. we came into the year and we had a disaster with energy. that rebound was the catalyst for very strong returns. it's difficult to duplicate the energy portion in 2017. the non-energy portion may have the goodyear next year. it's going to be very difficult to get 17%. alix: as rates rise, what area of high-yield is most exposed? michael: the big thing is rate. next year, rates are going to be

the big story. if you are negatively convex for the first time in the history of the asset classes, on top of that we have also had a search for yield out of asia and europe. a lot of investors are into credit. if they have alternative assets to invest in, they are going to lead them exposed. money go intoe triple c's? michael: that's a good question. the key is going to be how the overall economy does next year. if the economy does well in you get infrastructure reform and 3.5%, i thinkof they will perform quite well. if are a commissar correct and you have growth in the first half of the year followed by a modest pickup on the back cap, i

think single bees will do better. triple c's have their problems. atid: there is a lot of talk their about issuance going down because the interest will be tax-deductible anymore. it there will be companies needing to go to the market and issued debt. michael: i think tax reform is going to be a big thing. you have two different dynamics going on. repatriation is going to be a bigger impact than high-yield credit. there aren't that many firms and high-yield. the bigger issue is tax reform. we studied the entire package of the paul ryan proposal. investors need to remember that it's not just a lowering of the tax rate. it's not just a limited the deductibility of interest. it's a combination. together,ombine them when a company thinks about a project and they think about the future pay off of that project,

or projects become appealing because of lower interest rates or lower tax rates despite the fact that the interest is not going to be deducted. it's sort of a wash. alix: what is your strongest conviction and trade in 2017? michael: given the opec situation, we really like energy going into 2017. we are not a big fan of health care. alix: it's good to see you. thank you so much. david: just before christmas, dortch bank may have gotten an early present here in the settlement deutsche bank reached on friday with the doj may mean they get those year-end bonuses after all. the ecb has reduced the requirements for deutsche bank and others. williamss is allison along with william cowan.

he is the author of house of cards. a contributing editor to bloomberg television. let me start with you on this ecb announcement. they reduced 125 basis points. is this a surprise? it's a benefit to banks like deutsche bank. allison: a lot of the requirements the people talk about are the eventual requirements, not the baked in a. is banksve artie seen proactively taking action to reduce those requirements. jpmorganeen that with and efforts by other banks to lower the requirements by making shifts in their balance sheet and other changes. that is sort of a trade-off in terms of what your requirement is going to be in terms of the ongoing business. the other announcement that we

have gotten from both deutsche , that is credit suisse a key positive. that goes to the capital question of what their actual capital ratio is. david: that was such a turn of events on a friday. they had been so much in the news with the claim. there were questions about deutsche bank's survival. barclays said they will take it to the trial. >> they'd decided to settle right before the end of the obama administration. that ties up oh around most wall street firms. this leaves barclays. he is a former guy that used to work at jason jpmorgan. jpmorgan settled as well.

he would decide not to settle and would risk fighting and litigating with the donald trump justice department is an interesting development. suissendering why credit and deutsche bank didn't try to spin the dice on the trump justice department. it seems like it's going to be much more of a regulatory free-for-all unless regulation intensive time periods for wall street hang seng it has been here in david: the trump administration might be more lenient. on the other hand, it appeared to be a question for deutsche bank. allison: to your point, deutsche bank has come under pressure. ,head of third quarter earnings aey did say that they had loss of business due to some speculation at due to loss of confidence.

that had abated by the time they reported their third-quarter earnings and the stock had recovered significantly. a multipleoking at that included five times. it goes to show the risk of vulnerability. it is what your position is and what the risk is. the deutsche bank ceo has committed to getting the legal commitment behind them and move past it and we don't want to raise capital. if they could come to a number where you could meet both of those agreements, that will help build credibility. david: when you talk about stock bouncing back, u.s. banks have been act substantially since the election of donald trump. i talked to brian moynihan. >> the difference after the election has been on the

business side, the enthusiasm that the world is their oyster. midsize companies feel the there is more to get done. they feel better about the prospects of the regulatory environment. they feel better about the possibility of final demand. that's going to take time to come through. the consumer confidence shot up in the is this confidence shot up. david: if you listen to what he is talking about, he is talking about privately held companies that can make decisions and go on a diamond they are having talks about ramping up their activity. incredible.s even the week before the election, people were assuming hillary clinton was going to win and it was going to be the same regulatory environment. don't even think about anybody from wall street coming to

washington. a week later you have trump's election and the sentiment has changed. drank some -- banks have been trading up wildly. now they are at or near book. don't forget, goldman sachs went public at four times value. we are so far from that. it gives lots of the opportunity. i think it's a good thing because the sentiment was getting to restrictive the other way. i think it's healthy. alix: is there too much hope in the banks? change in the the administration and were we are with monetary policy, there is more reason for optimism entering this year than since the financial crisis. part of that is we have had the regulatory pendulum swinging one way for a very long time. stops, that can be a key positive for the banks.

since 2010, bank investors have hoped for a rise in interest rates. the caveat there is every single year except for the year of the taper tantrum, expectations are below that. even with the huge move we had year, we arer this below where people thought we would end up a year ago. i think we do have to keep an eye on the geopolitical surprises. that is where people were surprised this year. the u.s. economy shows continuous signs of improvement. ory have shown a tendency they have hesitated because of things going on around the world. we have several things that could possibly provide disruptions. david: is there a sense of the possible swing?

he said it would free up $160 billion to loan to customers or to return to shareholders and -- shareholders. william: it's big. don't forget plastic was 37 pages long. dodd-frank is 2400 pages long. they are still implemented it six years later. people don't know what they are supposed to do or not do. i think reducing that kind of paperwork and analysis that needs to be done, they are trying to comply with this. it's going to be good for the american people. what brian told me is one of the positive things that happened was we got everybody in the tent. people that drove the crisis last time were not the banks. it was people like lehman who are not regulated as banks. he would not want to give that

up. allison: there are some positive things have come out of the regulation. there were certain changes that were needed. ofyou look at the reforms the market and some of the reforms that have been improving transparency, a lot of the changes are positive. a lot of people have said that it's not that they want the volcker rule to be rolled back or major changes. to the extent that the sentiment and the pendulum are being eased back the other way, that can create a healthy environment for the business. david: allison, thank you so much. our contributor and author, will:. thank you for being here. alix: what does a trump presidency mean for imports like steel. we will be wayne in. this is bloomberg. ♪

taylor: coming up in the next hour, the chief strategist. we were just discussing what the banking industry might look like under the trump administration. what about importers and exporters? they have much more to be nervous about under the next president. what will tariffs look like?

what will they mean for a sick materials. she told me about the impact on steel. >> we have seen an increase in the amount of tariffs put on steel. that is the bulk of steel. neglected is beams and bars. what we think is already before trump was elected, there was a move to put those tariffs in place. accelerateat could the further tariffs could be placed on other products like rebar and beams. alix: how can that happen? illegally andared

asked for $2 billion in re-compensation. how does it work and stay legal at the same time? >> there are different kinds of tariffs. what bush did act in 2002 was a blanket tariff on all imports. we don't think that is going to happen, although there some out there talking about blanket tariffs. if we are talking about tariffs on an individual country, though have already been placed. putting be a matter of those elsewhere. there are circumvention cases that allege certain countries are using products from other countries that are already blocked. we think you will see rebar trade cases that will block it from countries. alix: when we talked about the kinds of tariffs, we saw hot

rolled tariffs in some cases when it comes to chinese imports. what can we expect if we move that to rebar? >> although we are very focused on china, of 800 million tons of chinese production, one million tons has been coming to the united states. other political issues, i don't think this is going to cause a massive trade war. i don't think any incremental products would cause a problem in themselves. i think that if we see further tariffs, who be talking about countries like turkey and vietnam. it doesn't have to do with china. alix: are we looking at triple digit tariffs? >> i don't think so. situations.ain i think tariffs tend to be over

20%. david, u.s. steel is up over 100% since the election in part because of this hope of more import taxes from chinese steel companies. david: it's hard to do that fast and legally. it takes a long time to go through that. alix: it's optimism nonetheless. david: there are other stories making headlines at this moment. amrita: toshiba could have a right down. taylor: the japanese company says it will disclose the impact on earnings as soon as possible. the write-down has to do with the westinghouse unit. they may reconsider the future of its nuclear business. the latest star wars movie is adding to a record year for disney. rogue one took in $96 million over the long christmas weekend. topped $7 already

billion in global ticket sales, the first time that has ever happened. that is your bloomberg business class -- flash. that's because star wars was awesome and everyone should see it. is donald trump considered a small cap guy? we will talk about that with battle of the charts. this is bloomberg. ♪

david: this is bloomberg. i am david weston. coming today, some economic data. it is at 9:00 eastern time. the0:00, we will have manufacturing makes. right now, it's time for battle of the charts. taylor, you get to start. taylor: we've been talking about the equity markets. donald trump is tweeting that markets are up 10% did let's take a look at that.

looked at the best of 2011. takinge, you can see the off after the election. it was up 14%. the dow is up 8%. is donald trump a small cap kind of guy? the lower tax structure is a room for companies and equity markets. let's say for example that he is able to cut the corporate tax rate from 35% to 25% for small businesses. that's an increase of 15% in profit. that is driving equity markets forward. the markets have increased by 15%. for 2017.itive for big and small alike. if he can get through. david: there is that little

question. she is getting very good at this. alix: i am looking at something nerdy. this is cross currency swap. if you have dollars and you want to swap them, you have to pay up for those dollars. this white line here is yen. back in 2011, you can see the stress in the yen and the euro markets. what we have seen the last few weeks is a continued funding stress for both. yes the yen dollar is now rallied a low bit. why?uestion is is this due to dollars scarcity. it's sort of a short term liquidity issue. is there something deeper here in how long it will wind up lasting? sources ofmited funding. there is new regulation out there. this is a persistent theme in

the market. i love keeping my eye on this because it's all about dollar strength at the end of the day. it is seasonal. at the end of the year it winds up getting a worse. it does not resource in january. david: i love them both. they are both terrific. of the year, i am interested in the funding stress on the dollar. i missed her and she is back. weing up in the next hour, look it u.s. home prices. this is bloomberg. ♪

alix: welcome to bloomberg daybreak. we are 30 minutes to the opening bell in new york. here is where we stand, you must equity futures relatively flat. light volume all across the board. the dollar grinding higher across all major markets, up by about 2/10 of 1% against the yen. a bit of selloff happening in the bond market. you have an auction coming up, what will that do to the supply issue, and crude grinding higher. bank: the european central determines monte dei paschi needs a .8 billion euros -- needs 8.8 billion euros. regulators say the bank remains solvent. tosident-elect trump ticking social media to save the u.n. does not do anything that he

would not -- he would have beaten president obama if they had gone head to head. democrats plan to challenge him on tax reform. looking back at a year of historic surprises and what promises to be no less than a challenging 2017. indexthe s&p core logic for home prices for october, up by 5%, year on year, better than estimated and up from about 5% for september. month, the month on theme continues with a tighter, leaner inventory and that is leading to consisting gains and home prices continuing to rise. joining us on the phone is robert shiller, economics and finance professor at yale university. how long can this lean inventory housing information lead to higher home prices?

>> we are at a turning point. the numbers were october, before the trump election. everything looks different, now. the numbers we are showing today don't look much different from recent months, but existing home sales are high, new home sales are high. boom might be a trump coming. alix: fair enough. part of the trump boom has been a higher interest rate and higher mortgage rate. us home sales and the mortgage rate, the white line is the mortgage rate and the blue line are us home sales and back in 2013 we had that jump in mortgage rates, you had a month later. could this be what we are in in the first half of 2017? >> in 2012, the mortgage rates

hit a historic low, and then there was the rising mortgage rates. the immediate impact was another housing boom, because 2012 was the turning point when there were some cities -- home prices started really improving. they were going up 10% a year, for a wild. ion of how people are reacting to rising mortgage rates, but one thought is to lock it in now. you had home sales recently, and that my continue as mortgage rates rise. this could feed a boom. i'm not saying it will. david: where are these new buyers coming from? the 2000 ainto

crisis, people were basically turning from renters into buyers. it is thought they went to historic levels. of right -- out renters? are we shifting that balance again? >> it is a slow process. there is a question whether this will continue. mightnow it looks like it be substantially, a jump the gun, let's get ahead of the mortgage rate increases, so it could be a very short phenomenon. you were talking about a long-term phenomenon of the tilt toward renting an apartment living. where is that going? that is long-term. it might go back. i keep coming back to trump. he exemplifies city living. a condo, a co-op. maybe that is a trend. alix: when you take a look at a

potential boom and with trump, we could see a boom, what does that whom look like -- what does that boom look like? >> i'm not forecasting a boom. it is such an important change in our government, and we just don't know where it is going. i could easily see a continuation of the trend that we have been having in recent 5% -- this 5% nationwide, going on. that is one scenario. the other scenario is the trump boom scenario. the fed is showing tightening, but janet yellen is not apparently a big trump supporter. there is a little tension going on, but i think the boom might win out. alix: what would you need to see

to be able to have more confidence in which way the scenario would play out? actualnt to see trump's policies and see how successful he is in getting them through. it is also a reaction. these historic changes are hard to predict. it is more sociology that economics. david: let me add another element to that, and that is the tax code. there is pressure to reform the tax code. how sensitive are these homebuyers to mortgage deductions? it will raise the standard deductions of that the mortgage deduction is less helpful. that is a negative. on the other hand, he wants to rates, which i think would be a positive for the housing market.

behavioralam a economist. i don't want to link things to precisely -- too precisely. there is also psychology. at what point do you feel like affordability becomes more than issue? you do see continued appreciation. at what point does it become prohibitive? when it was prohibitive was in the late 70's, early 80's. it is amazing what people went through, then to buy a house. we had double-digit inflation rates and mortgage rates closer to 20%. how did anyone buy a house? it did have an impact. home prices were low. people did manage to get by. we have seen about a 1% increase in the mortgage rate.

that is not exciting. not a big deal, yet. i'm not talking about major increases in 2017. i don't think it is a major question, right now. in 2006, 2007 saw was people buying second or third houses and flipping them. is there any indication that is creeping back into the housing market? >> i think it is creeping back in, but it is not extremely exciting. homebuyersor survey and i have asked what are your expectations for home price increases, and it is somewhere under 5% a year for the next 10 years. 2006, theo back to expectations were more like 12%. back then, there was real

excitement about investing in homes, because the spread between the expected increase in home prices and the mortgage rate was mortgage higher, but expectations were even more high. the spread was something like six percentage points. now it is zero. look at what people expect and what mortgage rates are, housing is not actually that exciting. something else has to be a source of excitement, some change, and we have not seen it yet. alix: robert shiller, professor at yale. david: for an update outside the business word, -- business world, we go to taylor riggs. taylor: the leader of japan will visit the place where a japanese big attack brought the u.s. into world war ii. prime minister abe will visit pearl harbor with president obama.

he began by placing a wreath at a military cemetery. russian search crews have found a flight recorder from the plane that crashed into the black sea. investigators will use the device to figure out why the military transport plunged moments after takeoff. all 92 people on board are believed to have died. the secretary-general of the united nations will end his term in new york's times square. december 31 is his last day in office. day.l news 24 hours a this is bloomberg. futures inve the s&p a very tight range, about four points all day. i have seen a bit more movement to the upside on metals. gold is up by 6/10 of 1%. platinum is the big winner, up over 1.5%.

-- up over one point 0% -- 1.0%. cliffs natural resources, the stocks moving higher. gold stock up by almost 2%. have -- londone is not open, so that is not trading. up, the cofounder -- now heads quite capital. he has serious concerns about what trump's presidency means for the flow of capital. that is next. ♪

david: this is bloomberg. starting this final trading week of 2016, does the stock market rally have any legs left? now, chiefh joins us strategist at quite capital. welcome back to the program. this is the big question is a lot of people are asking. we have had a nice run of to the stock market. it was doing all right, before donald trump. looking to 2017 as far as you can, is that going to continue? peter: my crystal ball gets foggy quickly. a year is a long time. momentum tends to accelerate in either direction and if you look back historically, so from the day ronald reagan was

inaugurated to the lowering of the stock market, it was down almost 25%. most presidential elections are almost countercyclical. it is the second longest period without a 10% correction since the 90's. we have to be cautious. for us as traders, it is great. more volatility, more opportunity. david: there has not been much volatility in the equity markets. why is that? peter: the vix in the aggregate --low, but the opportunity it is a market of stocks, not a stock market. when you look at the commodities sector, if you look at the metals, where they have been since the election. investor, a normal

you have not enjoyed this great run because of you had a balanced portfolio, look what's happened. if you had that balance with the s&p, you are ok, but not everybody has their money in the russell. alix: we have the russell 2000 having a huge run-up. we have a lot of money coming out of bonds and u.s. equities. to those hold in 2017, or how did they reverse? peter: you have heard the phrase you buy the rumor, you sell the fact. when you look at the rest of the commodities space, that concerns me with the oil sector. when i look at the rest of the world and i say to myself where is aggregate demand coming from? you did the segment earlier on tariffs. and if you raise prices at the margin, that is going to hurt aggregate demand.

that to me makes me suspect that you will have a sustainable rally. be careful what you ask for. dodd-frank has been terrible. when it passed, jp was it 20 and now it is at 85. there are rumors about what donald trump will do. a lot of buying. rumors about what opec will do. wire -- where is the next rumor? reforms arehese tax going to be as simple as one thing. the elimination of the mortgage seduction, the fact that if you reduce tax rates and you reduce the election, that will affect business planning. it is really easy to forecast your expenses. revenues are much more pesky, so if i'm doing forecasting and i know i am taking away my deductions, if my revenue does not go up, it may cost me more. that is the thing about

economics. we have talked about this for years. unintended consequences. we don't have significant policy experience, either in the administration or some other appointees. rookies make mistakes. there will be a mistake. how serious will it be? i don't know, but opportunities in the market are great. alix: what is your strongest conviction trade for 2017? anything aside from banks. call: we had this, what i escape velocity from the dollar. from 1.05, i broke think the dollar will continue to be stronger, which implies weaker commodity prices. economic growth is less than people think.

the fed's forecasted not have unemployment going down much which means employment growth slows. it does not have inflation picking up or gdp going above 2%. you can't wave a magic wand and say we will have gdp at 4%. if you look at large tax cuts, that has not worked. where was the latest -- greatest growth? after clinton passed the tax hike and you have more stability, better distribution of income and i think that is good for the economy. david: peter borish is going to be staying with us. we look for if the financials will be betrayed of choice going into -- will be the trade of choice going into next year. ♪

alix: a huge beneficiary of a trump presidency has been the banks. take a look at the s&p bank

index, up 24% since the election. peter borish of quad capital is here with us. do you buy into the optimism around banks? peter: when you have such a significant run-up, so quickly, one should not be plowing further into the financial sector. alix: would you be selling? peter: our time frame is one week to three months. we would be short-term planning for a pullback. it was so fast and given the verticality of the move, a correction of some significance that is worth playing is potentially on the horizon. that does -- there is a big difference between something that is over versus way extended. thefirst get, you always by first debt when you have an extended rally. we have not had that did, yet.

are stocks, but they also have a central role in the market. to what extent do you take into account the knockout affects. a better balance sheet, better stock value, and banks going out and stimulating the economy. peter: i'm not overly optimistic about that because the shape has not changed that significantly since the election. the markets have gotten ahead of themselves, which is often the case because they are a discounting mechanism. if i take the fed at their word, that they will raise three times, next year and they said they were going to raise cointreau and we said they would raise once, you might want to take the under because the question is, is the economy going to grow as quickly as people think, and is inflation going to pick up? if you look at commodity prices, we have not seen that.

since the election, copper is down 15%. that does not show aggregate demand. alix: in terms of the short-term trade, do you want to be binding when we end up getting -- buying when we end up dipping? buyr: you by the first -- the first debt, you sell the second -- g you sell th seconddip,. the one thing in this entire rally that was missing was sentiment. now all of a sudden, there is no worries. we are sitting there in disneyland, let's look at the fine things in life. that concerns me that sentiment has gotten ahead of itself. right, inflation

is not skyrocketing, but you have better interest margins, plus any regulatory rollback. peter: i think the regulatory rollback -- people have to be careful what they ask for. 22 guys on a football field with no referees are going to kill each other. you look at all the places that don't have regulation like beijing, you can't breathe. you go to hanoi, you can't thrive. you do need regulation and rolls and parameters. aboutre concerned regional banks getting ahead of themselves because if you look in those counties and states which are dependent on , where are and oil we in oil, we bounce back. where are we in a culture? -- in agriculture? alix: peter: dealing out some

pessimism. peter, see you -- dealing out some pessimism. good to see you. we are 35 minutes away. s&p and dow futures down a little bit. of little movement of cash to the upside in europe. volume is light as we enter this holiday week. in the fx market, you have a continuation of the dollar rally. dollar-yen up by .3%. 10 year yield up by four basis points. a big auction coming up for 2-year note's. -- notes. this is bloomberg. ♪

david: this is bloomberg. we are moments away from the opening bell in new york. here is a look at the premarket. a slight take up in dow jones as

-- and s&p futures, as well as nasdaq. still trying to get to 20,000 on the dow. taking a look at the dollar, you can see the dollar is strengthening across the board, against the yen and other currencies. bonds are selling off -- a little bit at a big auction coming up later in the day with a two-year on the bonds and crude, up over $53. up, and now we go up, to -- it keeps going and now we go over to alix steel. -- the nasdaqdaq and the s&p up. 50 points away from the critical 20,000 level for the dow. a little more movement, volume extraordinarily light but right around those record highs.

in the individual markets, we focus on a few names. one is killing it in the box office, disney becoming the first yu-gi-oh to pass $7 billion in global sales in one year. it has cointreau of the top global films so far. 2.5% -- biogen up by 2.5%. they needed another ms drug to help its bottom line. gopro getting a downgrade. the holiday season was not so great, average prices have declined as retailers were forced to discount their products to get them out the door. joining us now for a broader look at the markets, we bring in joe weisenthal.

let's start with equities. joe: not much is going on, as you can see, it is pretty flat. tweetyed donald trump's about the rally inequities. not exactly accurate when it comes to the s&p 500, but everybody is excited and today, we have the conference board cap -- conference number coming out. every survey you look at has been surging. he is kind of right, the mood is really brightened. david: $1 trillion being spent in retail. >> that might have been a stretch. alix: consumer sentiment, a 12 year high. about can argue causation, correlation, but it is all up. david: as you said, the dollar

-- i would move march upward. is there a ceiling? >> it looks like right now, there is not a ceiling because people are putting on the long dollar positions. all talking about a stronger dollar going into next year and it feels like deja vu. at the beginning of this year, we had a fed rate hike with people saying the dollar was going to continue to rise. alix: how much can it actually move? this might be my chart of the week. in normalized look at what the dollar index has done under reagan, bush, the second bush and trump. that herbal line at the end of the corner is trump. -- that purple line at the end of the corner is trump. a totally different world than where we were back in the 80's. consumer confidence is high, unemployment is falling. thing ander crazy

your guest, peter borish talked about it. people are acting like this is just the start of something big. where were all these people excited about the markets or feeling bullish the last seven years when we had them -- one of the most extraordinary rallies of all time? that whenwas the case the dollar went up, it hurt u.s. equities for all sorts of reasons. why are they both going up, together? >> it seems like people are saying this dollar rally is not as damaging as it was a couple of years ago, when we saw that huge dollar rally and the momentum started to hurt companies and earnings. companies are less worried about that. >> there is another factor that

for the -- for a long time, the dollar was a proxy for fear. when you were nervous that we would relapse into another crisis, you bought dollars. now there might be another regime were people are less worried about a collapse and they are buying dollars out of insurance or safety, but about optimism of the u.s. economy, expectations of a higher rate yielded on those dollars. there might be a different fundamental reason why the relationship between equities and dollars might be slipping. alix: it seems like big question i keep reading about is what prices, ian with oil am hearing 25% on the upside. that would potentially have a meaningful impact on companies. people are speculating about all of the potential policies of the new administration and reading what they would like to, into the dollar.

the newre reading into policies being dollar positive. all the numbers being thrown around are purely speculative. people are hearing what they want to hear. david: we totally suspended the relationship with the dollar and the current account situation. the dollar goes up, it should actually correct itself at some point. >> that is what people are saying to us. the dollar is a massive problem. for the last couple of fed minutes, they have not mentioned the dollar very much. it seems to me that the rise of the dollar has not created that much of a problem in terms of the u.s. economy. >> its speaks to one of the -- of theat the administration, that a strong dollar would make it a lot more compelling to buy overseas.

trump talk about how for to succeed, it would be nice if the fed could stay dovish for it while and do everything they can to not accelerate that left off. otherwise, we may just be making imports and goods of other countries more competitive. david: it is deeply ironic. take trade with mexico. the stronger the dollar, the more stuff we import from mexico. >> the more we invest in property from mexico. something has to give, otherwise the stronger dollar will undermine some of trump's policies on manufacturing. >> what is interesting to me is that financial conditions, which is the white bar, has heightened of that, but nowhere where we were in march or june of this year, or even back in october, despite the fact that the dollar was on a multi-decade high. >> the stock market -- if you look at the past significant

tightening and financial conditions and it tends to be associated with a sharper selloff in the stock market. as long as the stock market is markets, thatuity has a nice countervailing effect on the strong dollar. david: when i look at the chart, nobody talks about the fed. this makes it easier for them to raise. if the financial conditions were tightening more, that this gives them permission, if they want to. >> the fed has not mentioned the dollar in even a sort of warning sense and the fed does not seem super worried. no one asked janet yellen about the dollar, but it seems like the fed does not care as much about the dollar, right now, it is not having a very detrimental impact, and everyone is very excited about growth. it seems like the fed is not concerned.

david: thank you so much for being here. alix: coming up, we take a look at how president-elect donald trump will impact the ethanol market. ♪

taylor: this is bloomberg daybreak. -- ng up, 10 minutes into the

trading session. we are right around record highs for the major indices. at 19,970,es trading kissing a record high. the s&p one point away from a record close. volumes are extraordinarily light. materials and tech leading the way. for more on tech with the nasdaq sitting right above its record closing high, i want to get to abigail doolittle. abigail: we will take a look at oil. oil up for a seventh day in a row. a nice rise of 5%. of the end of august. this ahead of the supply cut of 1.8 million barrels, starting this sunday between opec and non-opec members. , it's bestr for oil since 2009. can these games continue? we have a chart that suggests

the gains can continue. tot goes all the way back 1999 and these blue boxes indicate the previous opec supply cuts of more than one billion barrels. we have the energy etf and and white, we have oil. big gains were ahead, so big gains could still be ahead for oil despite having this great year. we have another chart that suggests that oil could see gains in 2017. crash that came on the big dollar strength and after the market stabilized to some degree, volatility as buyers and sellers pushed oil above the average. buyers are firmly in control and it just that this area of congestion between 40 -- $40 and $50 could break to the upside. we could see oil trading upward in the not so near future -- not so far future.

chesapeake energy and southwest energy are up. what a big story on the year. andapeake energy up 67% selfless energy up 55%. -- southwest energy up 55%. alix: we have been looking at a trump presidency and its impact on different sectors and now we focus on ethanol. the biggest question is whether the system to trade biofuel credit will be reformed. you can turn that credit into the government or sell it in the open market to refiners that cannot blend ethanol and buy it to meet their quotas. if you take a look at my bloomberg, rin prices are up by one dollar this year which squeezes refining margins. carl icahn is an outspoken critic, saying the rin market is

the quintessential example of a rigged market where big gas -- anies what will happen to these credits and what will happen to ethanol companies? we turn to the ceo of green claims energy, a u.s. ethanol producer. great to talk to you. >> thank you. alix: how does your business change in the next four to the years -- eight years? out inout trump came strong support of our industry and what we do, every day, providing american jobs and homegrown energy. we provide about one million barrels of ethanol every day. we have a very bright future with great demand for our product both domestically and

globally. we expect to have over 1000 stations in 2017 with a blend. from our viewpoint, a trump presidency is good for the industry. alix: on the flipside, the epa announced record biofuel quotas for next year. about 15 billion gallons of ethanol. scott pruitt has been out saying ethanol threatens car engines. are you threatened by those quotas or do you think they stay? >> we think they stay for now. we look at what scott pruitt has said in the past and what the president-elect has said, and governorntly with branstad and the ambassador to china saying that president trump has assured him that they will be a. supporter of ethanol we think it

is a good number, a little over 10% of the fuel supply. cars to handle up to 15% with no problem. it is the most tested fuel of any type in history. when they come into this administration, it is a cornerstone of the agricultural. there are more constituents to serve than just the state of oklahoma. you will not do anything to put the farm economy at risk. theseent trump won farm states and it is important to have a strong ethanol policy. do these credits and going away under a trump presidency? higher rin prices are good for you guys. we are at the point of obligation, whether it is going

to be with the refiner or the blender. that is still a discussion that will have to take place over the next couple of years. we think it is a zero-sum game. while you might be on the wrong side of a investment like carl icahn complaining about the rin. everybody else is on the other side. whether it is a retailer or somebody who uses the system. there is a lot of different constituents when you look at rin credits. on the wrong side of the table, you will complain. a lot of people are making plenty of money in the system and it will have to -- there will have to be some rationalization that takes place. anything that takes place will have to take place over the next couple of years. there will be lots of discussion and you will have to put it out for review. these are complicated policies and i don't think you can just take one view of one person on the wrong side of the trade to really reform a system that does not need to be reformed, today. rin credits is a zero-sum game.

as a producer, we don't get any benefits. it might be in the blend margin. what we do see is expanded demand. when you are seeing is a lot of infrastructure and a lot of jobs being created. while you might be on the wrong side of the trade, there are a lot of people on the right side as well. in terms of your industry as a whole, you have been buying some plants this year, expanding your business to be more integrated. are you interested in buying more mills? >> we have been continuing to expand our business. we started off with two plants in 2007 and now we're up to 17 plants, the second-largest producer in the world. we look at everything that comes up on the market, for sale. some things do support our

platform and some things do not. you can assume we will continue to grow our business and look at assets when they come on the market. it comes down to write technology, right price and does it fit well into our platform and do we match up well with the plants that we look at? you can assume we are looking at everything, but some things we buy and some things we don't. you, thank to see you so much, todd becker, ceo of ethanol producer green plains energy. david: coming up, at the top of the hour, bloomberg markets with vonnie quinn. >> happy holidays. we are taking a look at the year to date performance of almost every asset class you can think of.

talking about the different indices and how they have been doing, all year. it is always a bit of a surprise. we are also speaking about the bond market and divergence. visit from tom a plies and of jeffries. it will be interesting to see. david: we will be watching. alix: we have some record watch is happening. the nasdaq is at a record , up by and intraday high 8/10 of 1%, over 5500. the nasdaq making a new record high and the s&p, higher on its record. close the s&p right around its intraday high in the dow jones just about a stones throw away from breaching that 20,000 level. we talk about the optimism of that trump trade and the

pessimism coming out of some analysts. david: new year celebrations starting early at the nasdaq. coming up, we will hear more from my exclusive interview with bank of america's brian moynihan.

david: this is bloomberg. bank of america has been a bit of a poster child for banks, making a huge comeback in the last year. subbing that stands out in contrast to what we are seeing with italian banks like monte dei paschi. i spoke with the chairman and ceo, ryan moynahan and he gives what he sees is the bank -- is the path for bank's future growth. brian: think about a company which has been around in various parts for 200 plus years. and howacquisitions easy my job is, relatively.

company andhuge that burden is not small, but it is interesting. david: he is feeling pretty good about his position. it is ironic because this bank has been the product of acquisitions and mergers and now he is out of the business. alix: i found that interesting about my take away from your interview. he is interested in the big risk-taking we -- not interested in the risk-taking we saw back in 2006. -- what his take was on the u.n., going forward in 2017 and the huge risk we could see that it could devalue more and if you wind up getting a border tax in the u.s., the dollar would shoot higher and the u.n. would fall and it could fall -- the dollar could rise against the u.n.

the market is kabuki unprepared for that kind of event. david: china is unprepared for that as well, because that would be -- that would be manner -- ramifications in their own system. alix: you know what is pretty now? the new record high we just made on the nasdaq. take a look here at the markets. 5509, a record close, intraday high. kissing a record close and the s&p above its record closing level. we do have stocks moving higher. the optimism continues. the volume is extraordinarily light. david: that does it for bloomberg daybreak. thank you for joining us. we will see you tomorrow. ♪

vonnie: it is 10:00 a.m. in new york, 3:00 p.m. in london. from new york, i am vonnie quinn. welcome to "bloomberg markets." ♪

vonnie: we are waiting for breaking news. consumer confidence reports coming out now. we will see if it is as good as the university of michigan figures. 113.7. analysts looking for 114.9. once again, consumer confidence a double reading better than forecast. at consumer confidence index 113.7. if anything were to send the dow to 20,000, that could do it. the dow trading at 19,968. that newsn up before as well. we will go into the details little more in a moment. go to abigail