private server while secretary of state. director's fbi to -- n not closing the investigation days before the election. expected to have an initial step toward dismantling the affordable care act. to make sure want we move these things come currently at the same time, repeal and replace. we need to show there is a better way forward, to show that even though the law is we can bridge ourselves to a better system. >> republicans were promising but a growing number of them were doing so -- security.cure

continued u.s. cooperation, head of president-elect trump's inauguration. he says the eu would be naive to rely on others as global risk threatens stability. global news powered by more than 2400 journalists and analysts. this is bloomberg. ♪ scarlet: live, i am scarlet fu. joe: we are 30 minutes from the close of trading in the u.s. we are seeing declines, the dow industrial falling. joe: the question is what did you miss? scarlet: we will dig into day

past the session with the equity strategist of bank of america merrill lynch. investors gear up for bank earnings which kickoff tomorrow. expected to post the biggest fourth-quarter trading since the financial crisis. plus, inside the federal reserve's head and more the struggleeveal at the start of the debt ceiling crisis. joe: let's look at where the major averages stand as we head toward the close. abigail doolittle is standing by. our guilt: modest declines for averages heading into the close. all down about one quarter of 1% or more. this does not tell the complete story. we saw decent volatility with the lows, the dow s&p 500 down 1% pair the nasdaq was down more than 1%. this is exemplified by the small-cap index, still down more than 1% near its lows, down

about 2%. some more saying this could be the unwind of the big rally out of the election. this chart suggests it is a little too early and yet too late to say this. 5556. in white, we see a nice rally out of the election. the blue, it tells us that bonds soul off and an orange, we have gold, which was selling off, all holding those basic directions. we see a little shift but that is not around the trunk -- yesterday. yield is down for its fourth week in a row and we see the dow is starting to lose a little steam while we see a big rally there in gold. the gold rally may look the biggest but probably most significant is the 10 year

yield. we look at the 10 year chart of the 10 year yield and we see a massive move higher, 84 basis points. bonds were selling off. this was a little congestion suggesting perhaps it is reversing. the big move up has caused a few bond movers to say we may be looking at the end of the bond bull market. in the next hour, we will have scott of kuvin -- of guggenheim coming out to discuss this. we look at the 10 year yield we have with that before, this is the tv 5215. the chart suggests right now, the bull market and bonds remain intact. in the 10 downtrend year yield as bonds rally. bonds,recent selloff in back in november, the top of the channel was touched perfectly and the channel has been reliable. it is also supported by the relative strength index.

it is a quantitative analysis -- theantitative analyst said last four times since 1981 rsi reached a level that suggested a big reversal. few weeks ora months, it may well stay intact. scarlet: senate confirmation hearings for the u.s. commerce secretary have been put on hold. we can tell you ross is finally a strong ally in the u.s. deal industry. the president of the united steelworkers is with us from pittsburgh to talk about what is driving his support. thank you for joining us. following the announcement that mr. ross would be the nominee for the commerce secretary, you have put out a statement saying the industry is smaller but more

efficient than ever. the mostmembers are productive workforce on the planet p are your union negotiated a contract with the international steel group. tell us about your experience. turn-of-the-century, 2001, 2002, 2 thousand three, the domestic steel industry was in complete crisis because of the flood of imports from china, brazil, and russia. we had 40 bankruptcies. major steel industries and we were not having a good time finding someone to help us save those companies. interested. help us and him acquire those countries. us anded closely with said to directors, you do how to make steel. tell me how to get the play started again.

they had planned to close the steel mills in cleveland, which would have really destroyed the mills. we put the mills back in place we almost 15 years later, still have people working in those steel mills particularly in those places. thousands of people are working and wilbur was one of those people who helped pull that off. i respect him a lot and during the time, he often articulated his strong concern to maintain strong manufacturing in america and new that manufacturing was the key to families supporting jobs. joe: i want to get your perspective on the administration as a whole, after the deal to save some jobs, donald from fired off a tweet blessing the president of united steelworkers 1999. is the relationship overall

between your union and this administration? do you see it as hostile? >> i don't. medicaid, voting rights, probably not on the name page. nafta,ng and replacing with china, having a strong and long-term infrastructure bill, those things we were fighting for for the last 35 years. if that is what president-elect trump plus his agenda is, we will help with that agenda. help him accomplish it. of overtures kinds has anyone from the administration made you and your union? have had some discussions with wilbur obviously. we know peter very well. someone who io be

have a tremendous amount of respect for. peter navarro has done a movie and a book called death by china. those are people we know that share our desire to have strong manufacturing industrial base. i get tired and annoyed when people call this the belt. you will find an operator and a four orll has three or five or six years of training. them towork with maintain and grow them. vision, what would be the key differences between what we would have now and what the ideal replacement would look like? you some give statistics. nafta, wepassage of

have accumulated the trade deficit with nafta. we have accumulated a trade deficit of almost $1 trillion. with the trade deal with south korea, again in a short time, a trade deficit of 162 billion dollars. why does no other nation want one if it is so good for the economy? not against trade. we are for a balanced trade. we used carrier as an example, the only reason it wanted to move from indiana to mexico is they could pay workers a total of six dollars per hour. i think the president-elect has the right idea. if you will manufacture furnaces in indiana, move it to mexico. mexicans do not need furnaces, then sell those in america. you should pay a heavy tax for leaving and trying to cut back.

i'm glad you bring up the trade deficit. i wonder how confident you are in infrastructure spending wreckage will be passed here especially as mitch mcconnell has warned against a debt that would come through such a plan. some point, mitch mcconnell and paul ryan have to come to their senses. they need to get out of their acrossand travel america. we lose more energy on the grid than we can imagine. dozens of bridges that are impossible with transport trucks. ryan annoyed that paul oppose the domestic content provision because he had small manufacturing in congressional district.

it is important we stand to fight and helped the president-elect to get a strong infrastructure bill, that we find a way to fund it and establish an ember structure bank very much like in europe where the bank is continuing to invest in european infrastructure and modernizing it. . am prepared for that debate they need to get out of their bubble. joe: thanks so much, the international president of united steelworkers. scarlet: financials still leading the decline. we will see dan, of bank of america merrill lynch. this is bloomberg. ♪

scarlet: despite the day decline, if u.s. policymakers can deliver on the 2017 promises, joining us now is an, equity strategist form bank of america merrill lynch. talking fiscal policy makers or monetary policy makers? the ship has sailed. >> that is the point, that the ship has sailed. the central bank has been replaced by a more powerful thing on the market. it is the only thing that matters in the next six months or so. joe: since the election, the present only seems to be interested in tech and companies that manufacture overseas or other things related to drug

prices. he does not seem to be talking much about the infrastructure stuff. how confident are you that you ?ave some idea >> at some point, it does not matter. i think it will come with more negative than people think. it'll probably be more water down than people think but that does not matter. want to start worrying when those things get locked down. that will not be in the next six months. >> i want to go back to the idea of the central bank. what would trigger a donald bernanke >> wef are about to go into earning season.

we get any signs of slowness or slowdowns in the economic data, anytime anybody will worry about that, who will short the market when you think stimulus is down the line? those expectations will still be there. joe: i know we are not supposed talk about the fed. the fed is yesterday's story. you mentioned strong data continues to be, another price of the initial claims number, almost no signs of weakness anywhere in the data coming out. does the risk of a faster than expected series of rate hikes threaten the rally at all? what if the fed actually make for 2017 or four as things pick up? >> for the time being, yellen has demonstrated she is very conservative and will not do anything to disrupt growth. line, we get to next

year and maybe a faster fed hike , as we get the policies that may become more water down, there will be a lot more of those negatives. next sixen now and the months, there is strong support for this. joe: you mentioned you think the ultimate bill might be worse thinking, people are what could be specifically worse? >> to get stuff done, you have to make car -- compromises. you look at the s&p, if you just thathe lower tax rate, could add 10 or $11 for the s&p. the borderce one of adjustments, if you keep adding on these, it is not that they

could of a positive for the market. that is the balance. thingsf you want to do on a budget neutral basis, maybe you have to do something more like 22%, and as you start making these shifts, it becomes less and less positive. scarlet: one thing we were talking about is the incredible indexes. if you invest in this post trump world, look at the companies in which he is praised, versus the companies he disparages through , whichand other comments he calls a swamp index, and that is the blue lined. it is up 16% including financials. the drugmakers he highlighted and called out.

of: do you get a lot questions about tailoring investment strategy based on his tweets and other things like that trying to figure out which companies are in and out? >> i'd do not get much in terms of tailoring investors to tweets. you have got to differentiate what the market is expecting and pricing in terms of real beneficiaries. multiples, those stocks have more than double the expansion whereas tax beneficiaries, probably the more likely beneficiary, they have not actually seen much expansion. there is a lot of nuance. joe: equity strategist for bank of america merrill lynch research, you will stay with us and next, we will take a look at volatility and currencies. scarlet: president obama introducing the vice president,

a tribute to the bidens and the first lady. if you wanted to catch the entirety of the tribute, you can catch it out on the bloomberg. president obama: there has not been a single moment since that time since i have doubted the wisdom of that decision. choicethe best possible not just for me, but for the american people. ♪

scarlet: let's take a deep dive into the bloomberg. charts at theur bottom of the screen. colleague.m your in yellow.el the vents holding the 2.5 year lows. the bottom panel is a spread between the two.

it is the widest in 15 years. we have seen wild swings, relentless pressure, unexpected moves in the offshore yen, equities is yawn. why so much complacency? >> you do not have to worry about any of the fundamentals. everything has risen in the u.s.. if you look at what has happened, a lot of fun -- volatility is going on. have worries next year about half oftion in france the emerging markets are still coming out of the recession. a lot of volatility. >> trump takes care of u.s. equities but nothing else falls under that umbrella. everything else is a world of chaos. >> to some extent, i think that

is definitely true. >> the correlation between treasuries and financials and right after the election, we saw financial stocks shoot up because of course, when rates go up, the banks are expected to make more money. there is the expectation banks will do well under trump, but as you can see, and that does not show up for a well, you can see they have diverse lately. interest rates have pulled it back to levels we have not since his november. financials have held up. is there more room for financials to run or is this trade going to sputter -- spin around as long as rates are languishing? >> two things going on. it is not just the financial story, it is the right story. support factors financials get to doing to

outperform and that is why you see it outperform today. in addition to that, there is further upside for rates. you will see rates go higher and that will help catalyze that performance. it is not just a rates story. in addition, you have got deregulation and all of the other positives financials have. joe: dan, senior equity strategist for bank of america merrill lynch. thank you very much. news from jiming comey, who says he is grateful to the expect her general for opening the investigation into whether the agency followed appropriate procedures when he investigated hillary clinton's use of private female. remember the timing of the became a huge point of contention during the campaign overall. would cooperate

fully with the doj review. the inspector general for this review according to a statement released by the head of the fbi. the market close is next. take a look at the major indexes. ♪

♪ scarlet: motorway from the

closing bell. what you missed, u.s. dollar and slumping the day after trump phil to provide details in his speech. failed to provide details in his speech. joe: if you are tuning in life on twitter, we want to welcome you. closing bell coverage every weekday from 4:00 to 5:00. scarlet: we begin with our market minutes. i feel like it does not tell the whole story because the indexes took a dive. p.m., theynd 12:00 have been on a straight path higher. it has been a pretty remarkable pairing of those gains. joe: this is pretty minor losses in the perspective of the day. scarlet: exactly. one sector i want to highlight is the bio techs. plungecouped yesterday's

due to the crackdown by trump. they made a big comeback, but over the past two days, they are down 2.5%. also under pressure today at least is chipmakers. you can see the philadelphia semiconductor index. i highlight apple because it is one of the big ones on the dow jones industrial average. lawsuit against apple can move forward. control over the app store violates u.s. antitrust laws so we will be keeping ion that. joe: let's get a look at government bond markets around the world. yields lower across the board. modestly lower in the u.s.. the 10 year yield have been significantly lowe 2.3.r to i want to spotlight the turkish 10 year yield because we talked about it yesterday. today was a bit of a comeback for the turkish lira and so

forth. nice decline on that front. scarlet: we have been giving a close eye on the turkish lira here. things have changed again. the found initially lost value on the announcement that prime minister theresa may will layout her brexit vision in a speech on tuesday. if you look at a chart of the one make volatility on the british pound, it shows it has been moving higher because may has signaled she will likely seek out the hard brexit. joe: chino represents pound risk. now represents pound risk. scarlet: that is a good point. edging closer to the 2% target could mean an end is insight for the stimulus program. a surge in the

currency could be problematic because it would lower inflation. that would get in way of the bank. joe: kind of like the u.s. anyway. let's look at commodities starting with oil and gold. not much going on in either market. oil rising back above $53 a barrel. that is west texas intermediate. the real action today was in the grains market. wheat, soybeans, and rice all green on news from the usda about lower-than-expected farm planting. you see a bullish day in the grain market. there you go. scarlet: those are today's market minutes. what did you miss? trump yesterday gave investors little reason to their bets that would improve the dollar. the nasdaq biotech index plunged. even though it made a recovery,

still down. the bottom line is trump moved markets. joining us now is scott. he manages $250 billion in assets. how do you position yourself or do you bother positioning yourself around trump's various announcements? >> that is pretty hard, right? we need to take a longer view with the trump policies, which are given the likelihood that we are going to get further deregulation or a slowdown in increased regulation and then i'll tell about the possibility of a tax cut and fiscal stimulus, this is a pretty potent mix for the economy. that should translate into higher equity prices. i would expect to see the s&p 2500, but in the near term we have come a long way pretty fast, and i don't think any investor be surprised to see the market take a pause,

correct, and try to establish a base to move higher. joe: what about the fact that trump lashes out anytime someone says something that is politically unpopular? yesterday, he took a shot at the drug companies, pharma. does not like the prices they charge. the attacked aerospace committees because he thinks they are expensive. the investment plans a car companies are now under the light. who knows where he will go next? how do you way that risk? scott: the key to the success of the trump program, economic plan will be not to get bogged down in minutia. scarlet: it seems like he is. scott: that is the question. if the president-elect allows himself to be sidetracked by a lot of micro issues in the economy, it is going to make it very difficult for him to move forward on all the programs and plans he has.

the president-elect has put a pretty full agenda on the table to be addressed. the question is now in my mind, can congress digest it all? that will be a real challenge. scarlet: can they pick up the baton and run with it? let's go to bonds for a moment. why are prices falling and yields rising? is it because of inflation expectations? scott: when you look at the strengthening dollar, you look at the fact that commodity prices have been relatively stable. it is telling you that there is an expectation that real growth or potential growth is improving. it is not because inflation is rising. if i saw the dollar weaken dramatically, that would change my perspective. an appreciating currency with rising interest rates is classically associated with an increase in real growth, not an increase in inflation. joe: obviously we have seen a little bit of a tick up in rates since the summer, but the

long-term trend is still incredibly low by any historical standards. are we seeing a real shift that will change this long-term trend, or is this just another one of the uplift on a long road down? scott: i always like to tell clients i tried to let the data tell me the story rather than try to come up with a story and fit the data to it. we happen in a 35 year bull market. interest rates have gone down since the early 1980's. that trend is solidly in place. we would need to see the 10-year note get up to 3% for that to violate the long-term trend. even if we do violate the long-term trend, you do not reverse trends like this on a dime. in all likelihood, rates would stay relatively contained and come back down, but it would be a sign that to see changes in place and over the next 20 or 30

years, we are likely to see higher rates. scarlet: i want to jump in with a headline from bloomberg news. anthony scrimmaging is set to join the trump white house. he will be named an assistant to the president. let's go back to your call about 3% and the 10 year yield. has said that would mean the bond bull market is over. another set 2.6%. we violate the long-term trend, the bond bull market is over? scott: it is basically the beginning of the end. long-term trends like this do not turn quickly. i think there will be another -- as the business cycle ages and would we could anticipate we might have another recession, there will be another deflationary burst that would bring rates back down if we get above 3%.

but we have not violated that trend yet. i am hesitant until the markets only we violated a trend to start anticipating it. once we do violate the trend, we know that we are going to be spending a number of years building a base that will lead to higher interest rates. joe: i was just thinking about the news that we got. are you surprised by the degree to which people in the financial industry, including many people with a history at goldman sachs, a firm that was specifically vilified on the campaign? hillary clinton was tied to it in a negative way. they are finding a home and a receptive welcome in this administration. does that catch you by surprise? scott: not really. if anything, trump brakes images. to fact that he has wanted surround himself with people who have been successful in virtually all kinds of industries, it does not surprise

me he is bringing people in from the financial community also. the one interesting thing is from a historical perspective. i cannot recall a time in u.s. history with maybe the exception of the calvin coolidge, herbert hoover era where business was so front and center. even ronald reagan, was a very pro-business, program candidate candidate did not have a cabinet full of businesspeople. we are taking businesspeople and putting them in these jobs. scarlet: this is a complete change from the previous administration where we had a lot of academics. what kind of people does trump need to bring on? other people he has not brought on that he should? scott: i think bn ministers would do well to have some academics in the administration.

i think we may want a deeper bench. not to say that peter is not capable, but having a few more people who have some deeper understanding of how economics work because economics and business are two different things. i know a lot of successful business people who have executed successful business plans that did not understand what about economics at all. the question for an administration like this is, what policies make sense for the economy in the long run, not what is going to work in the short run. joe: stick with us. we are going to pick your mind about the fed. he just came from a new york fed meeting, where he is an advisor. this is bloomberg. ♪

>> let's get to bloomberg's first word news. an investigation is underway by the justice department's inspector general looking into whether the fbi followed proper procedures in its probe of hillary clinton's use of a privately most server while secretary of state. the review will look at what led fbi director james comey to decide to not pursue charges. investigators will also review is announcement that he was reopening and then closing the investigation just days before the november election. jim conley says he is grateful for the review and that he will fully cooperate. mike pompeo took a tough stand against russia today during his confirmation hearing. the congressman appeared before the senate intelligence committee in the face of a testy standoff between president-elect trump and the intelligence community over russian hacking. >> this is very real. it is growing.

it is not new in that sense, but this was an aggressive action taken by the senior leadership inside of russia, and america has an obligation, and the cia has to be part of that obligation. >> is as much as reasserted itself aggressively in invading and occupying ukraine and doing nothing to defeat islamic state. the united nations envoy for syria says a cease-fire is largely holding with some exceptions. activists are reporting a growing number of airstrikes. officials are concerned the will further derail the talks to end the civil war in syria. theresa may will outline her vision for leaving the european union tuesday. she will answer calls from politicians and businesses who want to know her goals for brexit talks. those negotiation's are due in march. global news 24 hours a day powered by more than 2600 journalists in more than 120 countries.

this is bloomberg. joe: scott is still with us. you are also an advisor to the new york fed. about not talking as much the fed as we used to because so much of the attention has shifted to the administration. nonetheless, three hikes currently expected for the dots in 2017 what do you expect. 7. will you expect? scott: all we had to talk about was the fact for like seven years. the risk ofunning falling behind the curve. when you look at their projections of where unemployment will be at the end of the year, i cannot quite agree with where they stand. they expect unemployment to be around 4.6% in reality is if we have job growth in line with all

he had a dramatic increase in the participation rate to keep the unemployment rate at this level. by the end of the year, we are going to be approaching the 4% threshold. in addition to that, the dots, the market is not basically priced even to where the dots are for three rate increases. the risk is we will find three increases may not be enough by the time we get to the end of the year. joe: what happens if everyone is caught by surprise? wages keep picking up. the inflation data we see continues to go. the fed says maybe three dots is not enough. what does that into the markets? scott: you are vulnerable to a tantrum in the market where we get a selloff in long-term yields. fed shouldthat the take a more aggressive posture and get started as soon as possible. i think they should move in

march to get started. at this point, the market's price for a 4 basis point increase in march, which means it is not priced in an increase in al at all. i doubt the fed shares my view. they told us they are data dependence of march could be on the table, by the they will get their. re. scarlet: you are more hawkish than the fed. what will compel the fact to move -- fed to move? scott: the natural rate or the mutual rate. as you reduce regulation and increase spending and taxes, that increases the potential output for the economy. this real pickup in economic activity should be associated with an increase in interest rates. if you start to fin fall behind the curve, you raise questions

about longer-term inflationary expectation. the fed has done adequately good in of havinhemming inflationary expectation and i think they would hate to give up that battle. scarlet: you are not the only one who says they are behind the curve. john taylor has said as much. joe: also a possible replacement for janet yellen. who dwhen you think of some of the names that have been bandied about as yellen replacements. three names in the news. they were on a panel recently or some of them about the fed. subsidy is part of an audition. [laughter] scott: certainly john taylor is a highly respected guy. he would make a good strong academic. was on the board of governors before and is a capable fellow.

he comes more from the business world having worked at morgan stanley. i think both of them would be very good candidates to be chair. joe: do you worry at all about a potential conflict this year between now and the end of yellen's term between the administration and the fed? for a long time, the white house to not comment on the fed policy, trump does not look like the type that will hold back it he sees them as impeding the market. scott: i think we are to expect it. if he disagrees with the view of the fed chair, he will have no hesitancy to express that. i believe on the other side of the equation that janet yellen is instantly committed to the independence of the fed. the theories out there that she will resign are dramatically overblown. because of her strong feelings

about fed independence, if she did resign, she would be concerned that would send a signal that there was some lack of independence. i think we could have an interesting year or so until the end of chair yellen's term. that would make for good entertainment. scarlet: certainly. you are sticking with us. when we come back, how sweden's inflation brings much-needed relief. this is bloomberg. ♪

scarlet: i am scarlet fu. we are back with scott minor. let's take a deep dive into the bloomberg. i want to start with the global reflation story. there is more evidence of it.

this time coming from sweden. the white light is the cpi. thirdked up for the month. the blue line is the underlying inflation. the riksbank looks at that pretty well. yellow horizontal line, it has been five years since the bank met that target. is it credible this global relations the way we are seeing across the world? scott: i think so. one of the big factors is the dollar rally. as the dollar continues to strengthen, that raises prices elsewhere in the world. it allows domestic producers to raise their prices in their local markets. a strong dollar is good for the global reflation story. i think we are just getting started. joe: it is the real deal. scott: is the real deal. joe: here is another story. trump likes to tweet a lot. one of the things he tweets

about a few times is issues relating to mexico and the wall, and there is a story on a bloomberg today about how some traders would like the government of mexico or the settlement of mexico instea to y twitter and shut it down. it might be a really good thing for the world to be completely honest. --don't dowatching it for that reason. trump tweets about it and then you get a place of volatility. i am just curious your take on this in terms of trump tweet risk and currencies. no investor has ever dealt with anything like this. scott: you back away from it a little bit and you see the trump revolution is pretty impressive, right? we have never had a complete outsider from government become

the president of the united states. he did it really heavily off the back of social media. you can say that trump has revolutionized the way this works or social media has revolutionized it. i find it interesting that the president-elect uses social media as the means to communicate policy statements, but on the other hand, he clearly is a populous. joe: would probably will not get back to visit having that much power without -- this is the start of a new thing. scott: our country has gone through this before. andrew jackson, seventh president of the u.s., was the first populist president. he was the first president to campaign. every president that succeeded

preceded him had been secretary of state before he became president. we have gone through these kinds of revolutions before. the trump revolution has changed the way politics in america works. joe, maybe you could run for president when you start tweeting. scarlet: he has more than 100,000 followers. joe: i have on my way. scott: good start. joe: thank you very much for joining us. scott: thanks. scarlet: we wanted to bring you back to the white house where president obama is paying tribute to the vice president, joe biden. if you wanted to catch the entirety of his tribute, you can catch it on the bloomberg. it just wrapped up. paybiden being tribute by the president. he also paid tribute to the first lady, michelle obama. jp morgan is setmorga to release numbers tomorrow. we break it down for you. this is bloomberg.

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only xfinity gives you more to stream to any screen. download the xfinity tv app today. >> let's get to bloomberg first word news. fbi director james comey says he will cooperate fully with the justice department investigation. the doj's inspector general is seeing whether the the i followed proper procedures. the probe will examine comey's decision not to pursue charges against clinton. his announcement that he was opening and closing the investigation days before the election will also be reviewed. democrats say those moves damaged clinton's candidacy. the first military officer in charge of the pentagon since the 1950's. today in his senate confirmation

hearing, he targeted russia as a strategic adversary. >> i think right now the most important thing is that we recognize the reality of what we deal with with mr. putin and we recognize that he is trying to break the north atlantic alliance and we take these steps, the integrated steps, diplomatic, economic, military, and the alliance steps working with our allies to defend ourselves where we must. >> meanwhile, scott bridge capital founder anthony has been named an assistant to president-elect trump, according to people familiar with the decision who say he will have a general advisory role in the white house. rick perry will go before a senate bill next week for his confirmation hearing. the former texas governor is president-elect trump's nominee for energy secretary. as the longest-serving governor in texas, he was an advocate of american energy and oversaw a

state that is a powerhouse in fossil fuels and renewables. president obama paid tribute today to vice president joe biden, praising him as a store near he met with an externally career in public service. at the white house with biden by his side, he says his selection of joe biden as his vice president was the best possible choice, not just for him, but for the american people. that is the highest honor a civilian can receive. global news 24 hours a day powered by more than 2600 journalists and analysts in more this is countries. bloomberg ♪ . ♪ joe: lifted a greatly recap of today's market action. you can we ran across the board. across the board, but nothing too major. the dow jones down close to 180 points. a big comeback.

a similar story in government bond yield. we saw a big decline in yields earlier in the day, but then it bounced back up. a modest decline. you are looking at jd morgan numbers. scarlet: that's right. they will be reporting numbers before the opening bell friday. before we can really move forward, we have to look back at the corner that was in today's the numbers do not lie. the biggest fourth quarter trading hall since the crisis. up by at least 35%. analysts expect this trend to continue in the fourth quarter with an estimated average 32% surge in bond trading revenue. banks are on pace for the first annual bond trading revenue increase in four years. when looking at j.p. morgan in a 48%ular, the banks saw

year-over-year gain in fixed income in 3q. that is your white line. those trading gains along with trump's surprising election have pushed jp morgan and other bank shares higher. they are offering less regulation and the corporate taxes. the fed raised interest rates last year. they broke out how higher rates would los boost income. $10 billion for the net interest income by 2018. if the increased by zero to 25 basis points, jp morgan could make $6 million. election, weince the u.s. have seen a move up in the 10 year treasury yield. that is the white line, which couldn't lift the interest margin, which is the orange line

starting to come up a little bit. president last month told us it is too early to predict a rebound and there was a bit of over exuberance. thanks. what did you miss? today, the federal reserve released full transcript of eight meetings from the 2011 federal open market committee. to help us break them down is meant. we always get the minutes after the meetings, but this is the word for word conversation that they have in 2011, which was a pretty wild summer. we had the debt ceiling crisis, the eurozone crisis getting going. what was your big take away from reading all of these meetings? on the really honed in

august meeting in the middle of the year because they had just gone to the table right after s&p downgraded the u.s. credit rating if you recall. markets were going into a bit of a tailspin. things were getting messy. the outlook was pretty uncertain. we have a chart that illustrates this really well. if you look at what markets were pricing in terms of fed tightening that year, you can see this highlighted part in the middle shows that in the first 4 months of the year, people were expecting liftoff to come soon. this white line shows the points for the coming year. through the first four months of the year, there was a building expectation that it would be an exit fairly soon, but you can see starting around april going into august, august is the bottom of that chart where it really plunged because the debt ceiling thing, the euro crisis, a slowdown in the economy. they had just gotten really negative gdp. it soured the entire outlook.

is fixed to house a real that t speakseally was -- i to how surreal that summer wa really was. joe: he said i asked to go first today. this is from the august 9 meeting. go first not to parse economic data as to talk about cognitive dissonance and specifically to make a plea to all of us how important it is to resist the temptation we all naturally feel to cling to our own past beliefs and prescriptions. meaningful debate today is whether a week in halting recovery can continue or whether we are already at or below stall speed and quite possibly slipping into another recession. quite a dramatic thing. other people thought this, too. people thought the recovery was over it 2011. matt: this was the conversation going on at the table.

it was a scary time, and this highlights that. some of the things that were going on at that time, it is a little bit reminiscent of today so the economy is in a much better position today. we have a much stronger economy, but there is this real says of uncertainty going forward about what will happen next, right? the things that are grappling with, how to incorporate fiscal policy into their models for their forecasts about the economy. they were having those exact same problems then. they do not know how to do it, how to incorporate financial markets into the models. that was far and away the biggest thing going on at the time. just mass confusion. scarlet: that quote is really eye-opening because it is still candid in question he some of the central beliefs. was this universal? and other policymakers feel this way at all? were they more confident? matt: there was definitely a flavor around the table of pessimism a concern. he was probably a little more

pointed and his mindset. others were saying on the one hand these gdp revisions were discouraging. the stock market is looking scary, all we are not sure we are ready to conclude we are slipping into another recession at this point. internetater, the launching a new one in operati on twist. joe: a topic i am very interested in, the debt ceiling, particularly the run up to it. all kinds of speculation with the treasury or fed might do in a contingency. did we learn anything about that from the transcripts? matt: yes. this is a story that has been going on for the last five years because congress was upset about the idea that fed and treasury were doing these things behind the scenes that they were not keeping congress up to speed on. what we learned today is the fed

had a very detailed plan for how to prioritize different interest payments depending on what the treasury was going to do. the fed was confident that even if treasury did not stick to the plan they told the fed they were going to follow, the fed systems would be adaptable to whatever treasury throughout the. -- threw at them. the private backing systems they thought were not adequately equipped at all to deal with certain contingencies. that is what they were concerned about the impact that a pan in the works would have on the private sector, and that could have been disastrous. do the work of going through hundreds of pages of transcripts. thank you very much. matt: thank you. scarlet: secretary of state nominee rex tillerson says the island building must stop. would take a look where we consider china's reaction, next. this is bloomberg. ♪

scarlet: china is pushing back after president-elect donald secretary ofee for state warned about the disputed south china seas. >> we are going to have to send china a clear signal that the island building stops, and your access to those islands is also not going to be allowed. joe: today, retired marine general james mattis is more cautious. >> international waters are international waters. we have to figure out, how do we deal with holding on to the kind of rules we have made over many years that led to the prosperity for many nations? not just for hours. -- ours. joe: joining us now to discuss china's response is jon luther,

lu. obviously, this newly ministration making lots of noise, threatening to of been the existing relationship -- upend the existing relationship between the u.s. and china. how is the newest version being perceived in china and chinese media? >> i think everybody is taking a wait-and-see attitude. what trump tweets is not necessarily what he does. i think people understand that. i have talked to people in beijing. they will say there is a certain ty about uncertain what he gets into office, he will be a dealmaker because he is a businessman. they hope for a pragmatic president. is that what they will get? that is what a way to see. scarlet: what is their impression of obama? john: that have been pretty mixed feelings about obama. loving feelings about

hillary clinton just because they thought the pivot to asia helped inflame some of the attention to the south china sea. i am after they would have preferred hillary over trump. how they perceive obama since the stage for how they perceive trump. john: i think they perceived like as being predictable, a continuation of u.s. policy whereas trump is who knows, right? joe: in terms of his rhetoric, trump clearly seems to be more antagonistic towards china than hillary clinton or barack obama. there is view in china that perhaps maybe he is someone that the country can ultimately work with. john: yes. i think they are hoping they can make a deal. they are looking at trump as someone who would be willing to make a deal. it is quite interesting. outside of mattis speaking today, the party secretary of vietnam is in beijing today. he had a meeting overnight.

vietnam and the philippines are the main claimants to the islands. they seem to be coming to some sort of agreement. know how everything is going to work out. the tpp being taken off the table i think changes the calculus for everybody. scarlet: there might be a little bit of a vacuum there, and china can step in. a lot of political bluster here in the u.s., especially as we wait for donald trump to be sworn in. was there that same political bluster before leadership conferences in china this year? john: is there? i don't know. there might be, but we'll see it. scarlet: does it transpire the same way and how it trickles down to the economy? john: no the way. . there is a great demand for stability in a year of change in china. will you will be expecting is calmer markets.

what you will be expecting is calmer markets. they don't want anything to be out of order this year and for everything to go extremely smoothly. scarlet: does that extend to how it behaves towards taiwan? john: so i think there is a pull because there domestically, the government cannot seen to be taking a weak position on taiwan. they do not want there to be increased tension, but they cannot appear to be weak on that matter. joe: going into the leadership, this new congress, what should people who are not familiar with china's political system and how it works, what are the key things the wron along the road y attention to? john: at the end of the year, there will be a party congress. there is a seven man standing committee that rules china.

traditionally, there is an age limit 68. anybody over 68 does not continue on to the next term. of the seven, five are over 68. you would think five of those gentlemen will retire and we get five new people. the only two people who are under 68, kind of expect five new people on the standing committee. who those people are, they are not really sure. there is a small cohort of potential people. how it affects overall policy, i would expect continuation. jinping has the circle power. hold on scarlet: we talk about how obama looks at the long game. he really looks at the long game. john liu, thank you so much.

joe:, which more from our exclusive interview with ted . this is bloomberg. ♪

joe: would you miss? we want to bring you more of that exclusive interview with ted. fund iss largest developing plans to shift from external managers to internal. erik schatzker asked more about the specifics of the plan. >> is a difficult space in the stock markets to be an active investor.

we have brought just about use majority of our assets internal. we are very proud to have over 70% of the portfolio we managed internally, and most of that is our public asset classes, stock and bond. much of that in the stock portfolio is index oriented, but 30% of the portfolio is pursuing various active strategies. some of that we do internally. we have 20 estoril managers that deploy a range of active strategies. erik: if you could do everything you want to do, what with that 70% the? you would manage in-house what percentage? 100%? ted: no. 100%.ld not be we have one office here in sacramento. 100%. we are happy you are here visiting us in town, but looking at the private markets, real ofate, private equity, much

the local business, very important to know not just the local markets in the united states but across the globe. in order to build an internal capacity to invest in the private market, you have to plan for be really sure you can execute a direct model. erik: ontario teachers for example. canada pension plan investment board. i could name more. ted: the canadians have been successful in building out internal teams to do that. the united states pension plans, not so much. erik: is that because you cannot pay for the talent? ted: that is part of it. part of it is our governance structure being so intertwined with public agency of, in our case, the state. it limit some of the things we can do both in terms of

compensation and otherwise and opening offices and developing strategies across the globe that you really need to think through. the canadians were able to solve some of those problems with governance changes, and i think that is really a prerequisite. we are looking at other ways perhaps we could achieve some of objectives that the canadians and others have done without having to go to a direct model. erik: what kind of structure would have to work there? ted: a way to create or invest in a private operating company that could in turn build out those capacities. it would be more indirect way of doing that, but a special-purpose vehicle that would be able to build out all of those capacities that i mentioned. erik: still compliant with governance, state legislation, but functionally, something of

an end run? ted: a separate entity that would allow it to succeed. erik: let's go back to that question. 70% now. if you had your brothers, you and manage what percent in-house? ted: 75% maybe 80%. lever is ave that multibillion-dollar decision. ted: is a big deal. you can see the 70% we have a house right now, we pay 4 basis points. we have done really well in the fixed income and global equity for all you with attracting talent. very proud of the teams we have here in sacramento. they performed quite well over long periods of time. it is a great deal for the california taxpayer to be able to invest $220 billion at minimal basis points is a fantastic bargain. before we employ more of that

strategy in the private markets, we have to make sure we can compete. scarlet: we have some breaking news on morgan stanley. according to reuters, the firm's cutting bonuses for investment bankers by 15% and firing 20 directing managers. this is part of the annual performance review, the layoffs in general, but there were more than usual. coming up, what to prepare for tomorrow's trading day. ♪

scarlet: we're looking ahead to tomorrow. china releases its december exports and imports numbers. decembering into retail sales coming up at 8:30 a.m. eastern time. looking for a 0.4% growth up from 0.2% last month. scarlet: earnings from the big banks. you have bank of america, jp morgan, and wells fargo.all of that coming up tomorrow . that is all for what you missed. joe: have a great evening. this is bloomberg.