francine: the republican senator says she will back the bill. the house is due to vote today. michel barnier rules out a special brexit deal. reigniting south africa's growth. monthrrency hits a ninethe high. good morning, everyone. welcome to "bloomberg surveillance," i'm francine lacqua in london. i'm looking at the stoxx 600, gaining a touch.

everything has to do with the tax reform in the u.s. -dollar, a little bit affected by the tax bill. theresa may made moves to rally the troops to have a common vision on what trade will look like. we will speak with the vice chair of rothschild. we will also speak to david herro. and then, we will speak to fed president the of dallas we did get figures out of germany and business confidence is at 117 .2. it is missing estimates just buy a touch. to be at 117.2. weseems to be ranging as

speak. let's get straight to the bloomberg first word news. reporter: donald trump has called russia and china rival powers to the u.s. as he outlined a new foreign policy. in a departure from his previous statement, he declined to mention climate change as a threat. donald trump: we also face rival powers, russia and china. we will attempt to build a great partnership with those and other thatries, but in a manner always protects our national interest. reporter: nikki haley has blocked the u.n. security council resolution, calling on other countries not to establish diplomatic relations in jerusalem. this is less than two weeks after donald trump vowed to

relocate the embassy there. >> but we witnessed today in the security council was an insult. it will not be forgotten. it is one more example of the netted nations doing more harm than good. today, through the simple act of deciding where to put our embassy, the united states was forced to defend its opportunity. brexitr: the eu chief negotiator mischa barton he has put out a hard line position. negotiator started to unite behind a hard line position. barnier ruled out a special carveout for britain's financial services industry. the u.k. will have to go by any new rules after leaving the block.

cyril ramaphosa has been elected, a blow to president jacob zuma, who has backed his wife. the rand rallied on the results. saudi arabia is pairing and expansionary budget for next year. this would be the first time the number has fallen below 10%. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm sebastian salek. this is bloomberg. francine: susan collins of maine said she will back the gop tax bill, virtually ensuring the gop has the numbers to pass the legislation. the house will vote today. it will then go to the senate.

joining us now for more is kathleen hunter and the chief curtis strategist. the does it mean for possibility of passing it, and avoiding the government shutdown within a week? >> it seems all signs are good signs for republicans in the last 24 hours. they are racking up support in the senate, where they only have a two seat majority. john mccain will not be there for the vote. with susan collins, they cemented the votes they need, most likely, with the caveat that in the senate you never want to count your chickens before they have hatched. to president go

trump most likely by wednesday. francine: how different is this bill from the one we were talking about three or four weeks ago? kathleen : something getting a lot of attention was this provision that was airdropped in at the last minute. it would provide benefits for real estate investors. the president also falls into that category. itre's a general sense that overall has become more beneficial to higher earners th an it was at the outset through the various progressions. that's a real issue republicans are going to have to content with. democrats did as well when they passed obamacare and then several months later the voters delivered them a pretty strong rebuke at the polls when they lost control of the house of representatives. that's something for republicans to keep in mind as a cautionary

tale. they will need to make the case to voters that this is benefiting them. francine: what does this mean for dollar? would say this is fascinating. to equitytting a kick markets. abouts no question that. there's a positive correlation. there is increased skepticism. the dollar's reaction, we were above 1.18 on the euro-dollar. francine: but it could actually help companies. does that help with the dollar?

simon: you could argue it would. if you believe that was going to happen, that to a large degree that will be paid through increased dividends, then, yes. that is, if you are talking about an increase in the deficit. but that's not showing in the bond markets either. francine: kathleen, let me bring it over to my fabulous chart. theorugrought it back to 1980's. in red, the refcession environment fore the republicans. ion blue, the democrats. it shows you tax cuts, whether it was ronald reagan, george

bush. do the numbers add up for the u.s.? kathleen: republicans wanted to do tax reform taht did not add to the deficit. they are definitely adding to the deficit and are not doing full-scale tax reform. while this is a win, it should be taken with those caveats. is mostcit spending likely to result from this legislation as well. do marketsimon, worry about a government shutdown? simon: no, we've been through this over the last four or five years we've almost become impervious to it. seem to be,e does and despite all the arguments, the fed is in the middle of a hikign cycle.

we have got a growth positive tax hike coming through. francine: why is that? simon: that's a very good question. if you look at the dollar at the moment, there are longterm yields. francine: ok, so that that changes when you have inflation? simon: people are looking out and saying, ok, the on the next 12 to 18 months, do we believe this growth will continue? francine: i also have a great volatility chart, which i will show you shortly. hunter, thank you for joining us. for more on policy, we speak to the dallas fed president. plus, minneapolis fed president

neel kashkari, speaks to us later. hardline negotiating position on finances. all that next. this is bloomberg. ♪

francine: good morning, everyone. this is "bloomberg surveillance ," and we focus on economics and politics. let's get straight to the bloomberg first word flash.

reporter: the producer of frozen canned fruit and vegetable says an agreement has been reached and the secured appropriate financing. the deal is valued at $2.5 billion. vivtims of bernie madoff's ponzi startingll get checks in 2018. that will boost the total payouts to almost $11.5 billion. it would mean that more than half of those who submitted claims will have recovered their losses in full. willholders at mcdermott control 53% of the entity, with the rest going to investors. the combination of the two major construction companies will have an annual fee of $10 million. that's the bloomberg business

flash. francine: the eu's michel barnier set out a hardline on brexit. that comes ahead of the meeting of theresa may's cabinet, as she attempts to bring together the different factions. welcome to the program. this is the first time they sit down and talk. >> yes. francine: how is that possible? >> for the last 18 months, the british government has been avoiding the question of brexit. so much of this is about what it is like to be british. one of the things it is to be british is avoiding difficult conversations. the cabinet cannot agree about what they want out of brexit. fabulouslymost

british thing ever, they have agreed not to talk about it. and the yesterday, the british subcommittee had its first meeting, where they discussed, what do we actually want? today the full cabinet will have its first discussions. these meetings are private. we are reliant on what we can get out of people who are in the room. it sounds like yesterday there was no row. again, in a fabulously british way , everyone seems to have agreed to pretend that they think -- even the people who think may cannot get a good deal have agreed to say, why don't you try to get a good deal. everyone has agreed that she should go for an ambitious -- aim high is the phrase he used yesterday.

francine: what does this mean for rebellions? i don't know how much of it was therefabrication, or if are some people who just want the top job, and be aligned with the prime minister today. >> in terms of last week's rebellion, that was not so much about throwing may overboard, as about tory pro-europeans who enriched their limit. -- who had reached their limit. they defeated may, which she was not expecting. as a resault, she found a compromise on what we thought would be the crunch road. they reached this compromise where the date of the bill will be on the front, but there will be a clause that would allow changes. so, and we think, we don't know,

but we think that gets the out of the hole and there will not be a rebellion. but what's going on in cabinet today -- the pro-europeans in cabinet, the people who worry about the damage brexit will be to the economy, they all worry politically within the conservative party. you don't want to be somebody who was talking britain down. so, they are saying, well, ok, go for it. thank you for coming to the studio. this is so complicated. can you trade the pound on the back of these internal political machinations? >> through the course of this year, the foreign-exchange policy has been ignored. it has been nothing to do with

brexit. we've ignored it. we've played this by the bank of england and nobody else. here is one of the astonishing things by the foreign exchange market. but are you playing president through the bank of england? brexitaren't you playing through the bank of england? so, you are kind of trading brexit. >> if you step back to the broader aspect, not just the pound, you see where politics are having an affect the foreign-exchange market is reaching for yield in one form or another. i think that the risk is that in that kind of an environment, you tend to start ignoring the real

risks. now, i don't know. none of us know. but we do recognize that there are potential stumbles along the way. that's the risk along the way. francine: it was the one person we should focus on? jeremy corbyn? >> i think we do need to start looking at jeremy corbyn. there's so much that is uncertain about what is happening in politics. jeremy corbyn is giving an interview today in which he says he expects there will be an election next year and he expects to win. now, conservatives do not expect there to be an election next year, and if there, is, they don't expect him to win. path to whereot a there is an election next year and if there is, labour could

win it. francine: up next, the retail giant. crashed.ces ♪

francine: south africa's retail giant steinhoff has drawn unwanted comparisons to enron after scandal caused the share prices to crash.

jackie simmons is here. if you look at how much the market value has moved, can we actually survive this? >> today there is a crisis meeting with the lenders to decide if they will throw them a lifeline, or tear the company apart. today is a decisive moment. francine: what are the ripple effects? >> there are a lot of losers in this, few to no winners. to cap thes going power over a company that was seen as a shining light. francine: how many lawsuits are there? >> three lawsuits have been launched in europe. and there's a lot of money backing class-actions that are meant to come out. this is the beginning of the legal action. francine: jackie simmons, thank

you. ising up, cyril ramaphosa the new anc leader. can he rebuilt an economy that has been battered for years? implications on the rand. there has been a little bit of volatility, not only on the rand, but we have these emerging-market political stories. we'll go through your currency markets, especially in the world of emerging markets. this is bloomberg. ♪ is this a phone?

or a little internet machine? it makes you wonder: shouldn't we get our phones and internet from the same company? that's why xfinity mobile comes with your internet. you get up to 5 lines of talk and text at no extra cost. so all you pay for is data.

see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit, or go to xfinitymobile.com. francine: you are watching "bloomberg surveillance," where we focus on economics, finance and politics. i am francine lacqua. guy: senate republicans appear

to have clinched the tax bill vote. susan collins said she will back the bill. lins had said previously she wanted to review the final legislation before deciding. this week marks the last leg of the republican push to redevelop the tax code. the house and senate will vote tomorrow before sending to president trump. the president called russia and china rival powers to the u.s., as he outlined a muscular foreign policy. in a departure from his previous speech, he declined to mention climate change as a threat. president trump: we also phase rival powers, russia and china, hurt and there for influence. -- aim to hurt american influence. greatl seek to build a

partnership, but in a manner th at puts america first. reporter: nikki haley called on countries not to establish the diplomatic mission in jerusalem. weekss less than two after donald trump called to relocate the embassy there from tel aviv. >> what we witnessed here was an insult. it's one more example of the netted nations doing more harm than good in addressing the israeli-palestinian conflict. today with the simple act of deciding what to put our embassy, the united states was forced to defend its sovereignty. reporter: the european union chief brexit negotiator michel barnier set out a hardline may'son, juast as theresa cabinet started to unite behind a brexit policy.

barnirer warned the u.k. will have to abide by any new rules. saudi arabia is preparing what is expected to be an expansionary budget for next year. 8.9%eficit had narrowed to of gdp, the first time the deficit fell below 10% since the collapse of the oil crisis. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm sebastian salek. this is bloomberg. francine: south africa's ruling anc has elected cyril ramaphosa as the new leader, putting him on track to succeed jacob zuma. the 65-year-old veteran narrowly defeated nkosazana dlamini-zuma. he pledged to revive the nation's economy.

frome joined johannesburg. how hard is it going to be for cyril ramaphosa to exert control, given his slim win? >> it will be a tough ask for him. he would prepare to have a much clearer -- you would prefer to have a much clearer mandate. be a tough askk. francine: how are the markets taking this? markets havee welcomed mr. ramaphosa's victory. ng upw the rand rampig on friday on expectations that he would win.

francine: so, what's next for jacob zuma? >> that is the million-dollar question, as to whether he can maintain, stay in office. his second term is due to expire sometime in mid-2019. it will be interesting to see if the new leadership decides to remove him i think mr. ramaphosa would have liked to have done that. francine: thank you so much. us, simon derrick. i bring you over to my rand chart. it's as impl simple chart going back to december of 2016. what does this tell us about asset classes? mean, the inflation is

business friendly. it tends to address the issues of correction in the system. but there's a yield. this is a market seeking alternatives to the dollar. yield.ides the francine: is there still appetite for yield in the market? and does that create a distortion? >> yes, i do think that trade create significant distortions. toh of those distortions led this growth. the imf talked about this. even the bank of japan had

something to do. we heard kuroda talking about this. there's no question that there is that distortion within markets. one of the classic signs, ulta-low volatility in what you would consider otherwise higher-risk markets. francine: let me go over to my volatility chart. this is vbebetting on volatilit. the cboe volatility index in blue. what does this tell us? >> this tells us about astonishingly confident markets. the volatility itself is being crushed. over the course of the last four years. riskmeasures people's models. thanks to the tax deal, we have

a skew to the upside. from my perspective, that looks like a market thiat is bullish. francine: we have another chart showing repressed volatility. is the dollar kind of a vix index in disguise? [laughter] >> i think if that was the case, we would've had the dollar stabilize at far stronger leve ls. we've had a fed that surprised people in terms of raising rates this year. performing against currencies like the euro and s t erling, which have had significant issues thrown against them. growth,,ut

expectations , or something else? there is a concern about where this goes. the dollar is facing headwinds. goodine: are there emerging-markets, or equity markets going up within certain emerging markets?who >> one of the interesting things over the last few weeks is the divergence within some of these markets. like taiwan, south korea and even china with equity markets changing. with the tax story building those markets, we've been falling into favor. if am looking how i will play em in this environment, there is going to be a bad yield.

francine: simon derrick, thank you. stay with us. saudi balancing act. the kingdom will announce what is expected to be an expansionary budget. europe faces many challenges in 2018. we will discuss risks and opportunities. this is bloomberg. ♪

francine: this is "bloomberg surveillance," where we focus on economics, finance and politics.

according to saudi officials the budget will focus on the successor to the crown prince in an economy long dependent on oil. a ministry official stated the year.t fell to 8.9% this yousef, great to have you on the program. how does this set the stage, in terms of what to expect from today's budget announcement? yousef: it shows that are making progress in terms of found in the budget by 2020. they have made reforms that are quite sensitive by saudi metrics . you've got b.a.t. around the corner for 2018. as in most cases with austerity, it has weighed on growth. a contraction of 4% to 5% is

suggested this year. that means the government has a lot more room to maneuver this time around and more importantly, to reinvigorate the economy. francine: give me a sense of how this translates into changes in implementing a wider reform program? quite a fewe are things going on. you have the consolidation, the cleaning up of the house the government is describing, but in terms of the national transformation program, this sets the scene -- there is a little bit of change. anm 2015 to 2017, there was austerity-focused budget. waswing women to drive

unheard of in recent decades. the crackdown on corruption is sending shockwaves around the region and the world. the rest of the world will be watching very closely as to how this plays out and if some broader resolution can be realized. you, yousefank gamal el-din. joining us is paolo scaroni. paolo, you were head of m.e. for many years. what can russia and opec do next? is there enough force to counter the shale producers of the u.s.? >> russia and opec and saudi arabia, oil prices are around $60 per barrel. if you multiply that by 10 million, that's $100 million a

day for russia and saudi arabia. my expectation is the continue to curb production for the next 12 months, keeping oil prices where they are. the shale oil production will not be growing dramatically. francine: what do you mak eoe of what has happened in saudi arabia? lot andn in the news a has left investors a little uneasy. >> i would say the work the crown prince is doing is exactly what he announced in his vision 2030. changes are always risky, especially in a country like saudi arabia. still, saudi arabia needs the changes that the crown prince is

promoting now. francine: is the timing awkward for international investors? or is it something they had to do with the head of the ipo of saudi aramco? princeink that the crown had to move ahead he's taking some risks, of course. women driving cars means women participating in the workforace. we don't have public transportation in saudi arabia. so, if you cannot drive, you cannot work. francine: if you look at 2018, root the biggest factors? what will give us an idea of where the price of oil goes?

is oil more relevant now than it was 10 years ago? >> it is still very relevant. priceectation on ioil is simple. as long as the agreement between saudi arabia and russia holds to curb production, oil will stay in the area of $60. i don't think saudi arabia or russia want the price to jump to $100. so, consumption is growing. there's room for new production. oil prices are ok. also ok for shale oil producers. in total the situation is stable and good for all players.

francine: do you think it wills $63?ay around >> it will stay around $60 to $63. the question will be, what will happen in 2019? if consumption continues, you 2019.see some scarcity by thankne: paolo scaroni, you. what's next for europe in 2018? with paolotahhat next scaroni. this is bloomberg. ♪

francine: economics, finance and politics. this is "bloomberg surveillance" and i'm francine lacqua in london. europe is likely to grab they attention of investors across the continent. italy is effected to hold his general election in march. in germany, angela merkel is still trying to hash out a coalition deal after

disappointing results in her september election. voting in catalonia could see more of people. brexit should continue to hang over some of the markets. so, what should we expect? paolo scaroni is the with us. when you look at the european landscape, growth seems to be very strong. lack ofpulism bring a reforms? >> the economy is performing well. income is growing more in europe than in the u.s. we are doing well and we are doing well all over europe. increasingly, this should be calming people who are against everything, the populists

here and there. it's been the key in europe, austria, and germany. francine: want to literally bring? -- what will italy bring? shying away from it because there is so much bond holding. if there is a populist movement, those bonds could go haywire. >> the populist movement in italy, the five star, is becoming the first party in the country with something like 28% electoral system needs a coalition and they do not have a coalition. francine: can they not get one? macquarie -- >> no, they don't want one. francine: and they won't change their mind? >> no, they have said they will

not change their mind. that means they will get not the majority, but will be the l argest in terms of votes. the electoral campaign is so good that he gains votes at the last minute. the loser seems to be the democratic party. we see what happens. the campaign has not started yet. francine: there is a campaign led by berlusconi. what can we expect? >> this is my personal opinion. italians don't like reforms. they like to be speak about reforms. francine: we could say that about a number of countries.

>> they are living a great life, and they don't see what they should be the object of reform. so, mr. berlusconi has understood this very well. he's been in power for many years. the prime minister in italy is really managing the country, more than trying to change the country. i've noticed the major reforms happen when we have two majors. first of all, the bench reform, which is working very well. and the second one, th ee jobs reform. francine: why do italian companies not scale off? you have very nice italian companies that get bought out by foreigners.

>> normally they don't scale up because they would rather sell than lose part of the property. sone's a moment when the maybe sells the company, but they prefer to be the only owner of the company. this is changing as well. we see some improvement in this area. francine: paolo scaroni, thank you. "bloomberg surveillance withinues in the next hour tom keene. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. francine: republican senator

backed the tax bill, virtually ensuring the number of legislation to pass. the house is judy chu today. chief negotiator moves out a brexit deal for britain spanked. good morning, this is bloomberg surveillance. tom keene is in new york. we have a lot of news on the tax bill. this is out of the german -- hasor saying that been seen as a dominant force. this is out of a preliminary probe but nothing is final yet. this is just preliminary. and initial findings. 1810---window into 2000 2018-2019.

europe will lead the way on the dominance of facebook and google. it is very interesting, the u.s. dialogue, about what is going on in europe. francine: we will keep an eye on facebook. senate republicans appear to have the votes they need to pass a tax reform bill. the missing bill fell into place when susan collins said she would vote for the measure. she previously said she wanted to review the measure. an amtrak train was speeding before a derailment. miles per hour in a 30 mile per hour zone. at least three people were killed and others treated at a hospital when it went off the overpass. and the eu chief negotiator is taking a tougher stance.

a specialhere will be carve out for the services industry. and she warned that once it leaves, the u.k. has to follow by the eu insed the transition time. arabia's budget deficit has fallen below 10%. they have been cutting spending and reducing subsidies. they are relying on measures to boost private sector growth. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. this is bloomberg. equities, bonds, currencies, commodities. a really quiet check. stocks do continue. a little bit of curve steepening. i am struggling. help me. holidays it isn't the

yet. usually it is a two board rule. in europe, i think this is about the tax cut. treasuries are steady and for good measure i put in the pound. theresa may is using the cabinet . tom: stock selection. meandex fund -- i don't stock selection. the yellow line is down. the white line is up. ge -- this is a remarkable chart. i would never thought i would see honeywell would take off. comparing honeywell two g e is sobering.

this is my chart, it is simple. a volatility chart. hedging has actually edged up a bit. so he may be going up to the record lows. tom: francine, the scheme. this is actually a risk reversal. well done. even from new york, you can see it. let's get back to the top stories. sprint toican party overhaul the tax code that could cross the finish line this week. are poised to pass it this week. democratic leaders have been searching for ways to delay the passing. it would deliver a major policy

victory for trump. we're joined by the bloomberg news managing editor, james ro.tley and david her david has been a major donor for the public and party. the tax look at overhaul, how different is this compared to what we were talking about four weeks ago? david: fundamentally, quite similar. in the basic outlines. there is a big corporate tax cut . cutsome individual tax in the predominantly democratic states, a lot of people will end up paying higher taxes. and that is pretty much it. and then you have particular deals that were struck to get thering voters such as

"corporate kickback" and marco rubio and susan collins got various kickbacks. francine: how difficult is to get it passed? >> republicans have the votes to pass this. and if they want to shut the government down, they will. but it is really on them. francine: there is one clincher of the vote. this is a big win for the republican party? for trump? there was a lot of talk about being unable to get the caucasus together. there are extreme people within the party. a lot of people with an agenda. and for mitch mcconnell and paul ryan to corral and on riley corral and on wiley

is big. tom: i have two rip up the script and go to the gossip of the moment. at's pretend we are having holiday beverage. if speaker ryan chooses to step down. would mr. harold be interested in serving the first district of wisconsin? >> no. [laughter] i thought it would ask. property in wisconsin but that is probably one of the safest seats in the united states. i have clients to look after. tom: i thought the constraint was that it was the first district as far away from the green bay packers as you could get.

featuring0 hour i am elizabeth mcdonough, a librarian with 20 years experience in senate rules. the democrats can go to her and 42 -- say i do 42 and is it appropriate? will that be a big deal? >> no. it is the sausage making process. as the decision-making process is over, it will pass. it is how much blood will be drawn in the red so. really wanting to give this

tax cut bill a pass, maybe it do you suggest that we will see economic growth off the republican legislation? >> it will be additive. will do is create better expectations and a better environment. in this environment, people will hire and invest. animal spirits. different than what we were trying to accomplish with monetary policy. no one wanted to invest or higher. there was a low level of confidence to move forward with substantial expenditures. tax program, you will see more of this.

you will see a more favorable atmosphere for companies and individuals to spend and invest. francine: what if they go back to dividends and share buybacks? what if people say they have a tax windfall and instead of building that plan, i will just give it back? ofid: there will be some this but all of a sudden this has become a crime. to me, the crime is if you don't do things with cash flow. companyld buy another or they could give it to the owners but let's follow the string. to the owners, they spend it or save it. those thatwhat about

are invested in defined benefit pension plans? these are my clients. are pute whose savings into the u.s. financial markets thathave by efficient -- have benefited substantially by this. and it is being ignored in the result of the tax reform. , in our newerro london headquarters. try to get a coffee. james hartley, greatly appreciate your perspective. this is what we do. important,, controversial fed presidents today. robert kaplan with the dallas fed and then an interview with neel kashkari. that will be on television and radio, worldwide. this is bloomberg. ♪

>> let's get to the bloomberg business flash. secured a appropriate financing but there is no assurance there will be a deal. billion.ued at 2.3 construction companies have agreed to combine. they will buy chicago virgin iron. and facebook is rejecting a finding from germany's antitrust

investigators over dominance. they say it paints an inaccurate picture and does not allow it to create products and force people to use them. that is the bloomberg business flash. francine: onto banks. with financial regulators, finally we are on the new side of global standards. of the concerns international banking sector, generally it was responded to asitively with something of tail wind into the new year. still with us his david herro. have been looking at the banks quite a lot. is 2000 18 the year when we add you own?ocks that because the landscape doesn't

seem as ugly as it was? david: we are overweight today. which would indicate that we still believe that it is one of the last areas of undiscovered value. financial crisis, the greek crisis -- all of these things have the european banks built-in at low values. you mentioned a better regulatory environment, what was a headwind will become a tailwind. the european economy is picking up which means more credit growth and there has been good cost containment. valuations are still attractive. likeine: i know that you credit suisse. you to that situation? what do you make of the prompt departure of --

david: i don't think it was a scandal. i think he had a good business opportunity. baer is anius attractive stock. it has been a drag on our performance results until recently but now we are finally starting to see the fruits of what new management has done. refinancing the business. with capitaltive allocation and cost control and credit suisse, this is the beginning of a long recovery. francine: will we see -- david: i don't know if it makes a lot of sense. combining to combine doesn't

make a lot of sense. tom: i look at where we are. a huge bull market. has been record bordering on an act of god. all of your with success, how does that continue in 2018. 2021 i really invest into or 2022, how to a frame that enthusiasm now? david: you always focus on the investment for the long-term. i believe there is a trade-off .oing short-term achieving results over 15 years. when people say, what you think will happen next year? i say, i don't know and i do care.

about applying my client savings into investment ideas that will work over the medium and long-term. to what to be blinded is going to happen in the immediate short-term and you stay focused on the medium and long-term. why is that important? the market changes price minute to minute and hour to hour. changes in corporation happen in a gradual fashion. out five years gives . misconception back and we come will have fun drilling into the menu ship -- drilling into the minutia. we aree bit wonky but doing wonky because i have not

started my christmas shopping yet. in the next hour we continue and equity look with credit suisse. and coming up, from the on thesan policy center text bill and the house and the senate and the parliament. this is bloomberg. ♪

tom: this is going to be a treat. herro.e is with david bring this up.

we never show this but this is why people actually buy a bloomberg terminal because you can go in and look at all this data. this is the cash flow. is. it cash flow. cash from financing. and down here is the summary page. which is the ratios and some nation. help us here with what you do for cash flow for equity and price cash flow. how do you use that tool that everybody talks about what they don't really know what they're talking about. david: this is very important. i'm glad you are bringing this up. a company's collection of assets -- it could be people -- they are managed by management. managers.

our view is that we expect managers to manage assets in a way which creates a durable cash flow seen. hopefully a scene that grows time.h this is what makes a company valuable. because what does cash flow do? this is used to expand your business and pay owners. this is the most important variable of a company. teamfficient a management can convert its sales into free cash. and how effective they can leverage the assets. tom: durable. ?ow do you glean durable david: the problem in the past with ge was that you saw sales in income growth but not that much growth in cash flow.

and the ones that consistently will grow.low we think there on the right track to doing a better job at converting sales into cash which is a good thing. we have a management team that ge, have a greater focus at giving us pause to the -- to be confident. herro.vid thank you so much. bloomberg radio, coast-to-coast. ♪

♪ bloomberg surveillance from london and new york, with everyone looking at washington today. the republicans migrating towards a tax bill.

analysiset some of the . a big argument about helping that deficit add will be. right now, your bloomberg first word news. >> today, congress begins the final steps for the biggest rewrite of u.s. tax law in three decades. house republicans are expected to pass the tax bill. the senate is likely to follow up its approval later today or tomorrow. it permanently slashes the top tax rate for businesses to 21% and doubles the standard deduction used by about two thirds of american households. house republicans have proposed their biggest standalone bill in years. they want to spend 81 billion years in disaster aid for areas hit by hurricanes and wildfires as part of the bill needed to keep the open -- keep the government open by friday.

president trump is trying to turn his america first campaign pledge into diplomacy. rivalled russia and china powers but that he will continue to try to work with them as partners. the u.s. is blaming north korea or the so-called attack, according to an article by the homeland security adviser in the wall street journal.the attack attacked thousands of computers around the world in may. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. no onne: thank you, and .o matters of all things brexit they rolled up a special deal for the u.k.'s banking center, ahead of the meeting of theresa may's cabinet meeting. joining us is our london bureau chief david merrick and we have

still with this david herro. today is quite significant because it seems to be maybe for one of the first time in my memory that the cabinet may not with her anymore. david: they are playing nice at the moment. the cabinet meeting yesterday was to hash out some priorities. today, we have the full meeting. we have heard noises, boris johnson talking about concerns on whether the u.k. will be a facile state to the eu. everyone is still towing the line. they're putting front this cabinet unity as we inch forward to some sort of negotiating stance as to what they want the trade relationship to look like. full cabinet meeting today. tomorrow, europeans will release their negotiating stance. barnier has come out with hardline comments. if you look into those comments,

no different than when he has said all along. he is talking about if you leave the market, you are leaving it. there's no real change. we'll get more detail tomorrow. francine: how significant is it he spoke to the guardian? is this a message for the british citizens? david: this is what base to will look like. he said this, he said this. interviews with different newspapers. we are trying to look for when there is a substantive change who was going to concede any of these major points. so far, things have not shifted. whether you are talking to the guardian, there was an interview with prospect magazine. britain said, do not worry about it. it is a negotiating stance. tom: i read the wonderful bloomberg article carefully. i am baffled by this. absolutely baffled. what are the incentives for the eu to cooperate with the

government of the united kingdom? i cannot discover them. david: there are many states within the eu 27 that are left who have a strong incentive to have based on trade relationship. tom: ireland. david: places like ireland. smaller economies. you have a lot of weight in the european union to have a strong trade relationship with britain. you have other countries that seat an opportunity. are seeing an opportunity in financial services to bring business back to paris. if you're a german car operator, exporter in the netherlands, you have a lot riding on this relationship. strategyee britain's is to try to tap into those different areas around the region and get those forces within the e to voice -- you target for a bed -- eu target for a better trade deal. tom: what does it mean for the city?

what does it mean for the cd? what does it mean --city?what does it mean for mansion house ? david: it is no different to what you said the last few days. you leave the market, you lose the rights to sell financial services across the european union. however, we do have a long transition period.that is one thing they have agreed to . that means for now, it does not change now. the banks can assume that the more change for two years after brexit in march 2019. time.s an awful lot of you think how far things have changed in the last year, it is a long time to get things in place. britain says, we think we can do it better than that, and they will try to get some sort of

regulator he recognition between the 2 -- regularly -- regulatory recognition. francine: they are behind the prime minister, they are not behind her, someone once leadership, do you like u.k. thanks or are you staying away? david: we like the fact that their valuations are being depressed by what we think isn't a permanent situation. an opportunity. our biggest position is lloyds bank. we think it is well capitalized and it gets hit by this type of thing. even ibs. eventually, they will be solutions worked out. it will not be one size fits all. david made a good point of bringing up some sectors do better than others. for instance, german on mobile makers, their biggest customer outside of germany is the united kingdom. there is some reason to have

common benefit by having a good trade agreements. francine: does it mean you are adding to your positions? anytime there is a negative headline, are you buying? david: yes, if we do not think this price dips correspond with the change in intrinsic value, it is an opportunity to add to some of these positions. tom: within the banking, let's stay on u.k. banks, what is your best outcome? that they merge? or are you looking that they merge or that they work it out within a strategy, bring it over to a tactical business plan? david: i do not think there needs to be a lot of merger in the banking sector. it is relatively concentrated. three banks are for banks when you look at -- four banks now that most of the deposits. four of the banks are probably 75%. what would be

beneficial as more and more certainty, especially for those investment banks or those doing a lot of cross-border. lloyds is an example. it is basically a u.k. bank, this is their core client base. has is more asit it relates to the impact that brexit has under growth of the kingdom. a lack of growth and negative growth means more losses unless credit expansion. we feel comfortable with the u.k. banking sector as it is today. they do not need to merge. certainty is always good. it enables a financial institution to plan effectively. francine: thank you, david herro and a london. chief david merritt. we will continue with david herro and talk about companies. in the meantime, if you are on twitter, follow a tick tock by bloomberg.

bloomberg'sd by analysts and journalists. it is a fun watch and kicked off yesterday. it is new. this is bloomberg. ♪

♪ francine: this is bloomberg surveillance. we had breaking news. this is a south african furniture retailer that has been engulfed in a scandal. this is after the shares crashed after the company reported accounting irregularities that stretch back to 2016. steinhoff is meeting with creditors, trying to figure out

a solution. cost lost $12 billion in terms of market cap after that date. they are now naming a new ceo. he is the new acting ceo. i imagine this is part of the deal because they are talking with partners to restructure and figure out a solution. reallyr, this was glad under the billionaire chairman, so it implicates one of the risks just south african -- richest south african members of the business community. africa, the south new leader is putting him on track to secede the president. the union veteran nearly defeated the opponent after winning 52% of the vote and they have pledged to revise -- revive the economy. michael cohen joins us now from

johannesburg. reform?eally he had a slim majority when the boat happened yesterday? how much power does he have to reform the south african economy later? michael: i think it is going to be difficult with that narrow margin of victory. he will have to strike hard bargains to get what he wants. it will not be an easy task. francine: he has the support of the markets, right? the rand moved significantly on the back of this. michael: he was clearly the investor's favorite. they're looking to his promised reforms to reviving the economy. the market is anticipating more gains. today.lat

the markets do like in there and it is the news for the economy. tom: there is a brutal chart out of the following of south africa versus all of sub-saharan africa. south africa has fallen behind in growth amid all the turmoil. is there any desire by the public for a new regime, a new government that can jumpstart south africa after the excellence of once knew? anc is pretty much still be majority party banks from the gain from having led the fact against the apartheid. that said, their dominance is being eroded. we saw that the support slip to the lowest level ever in last year's municipal elections and

they lost control of several major talents. their party is on the downward slide. i think they are worry about that. it was highlighted that that majority snow at risk. francine: thank you, are south african government reporter, michael cohen, from johannesburg. the chiefo, investment officer for international equities, is still with us. africa, look at south in glencore, when you look at it, they are on the inquisitive trail and competitors are not. are they being too aggressive? david: not at this stage. most of these deals end up being small, where they cost a little upfront and they control a lot on the lower end of it. for instance, if you look one year ago, there was a deal for the russian oil company, and here we are when you later, and basically, they have gotten their money back in an agreement

to distribute or market and trade the oil that comes out of that oil company. these things look like there is a lot happening. when you really look at money that has been spent, it tends to be small. francine: some of the glencore competitors have been paying higher dividends. is glencore getting it right? this goes back to the conversation before. you have a number of options as the ceo and you could invest, acquire and give back. david: this is right. this is what we analyze management's ability to do. what will they do it that cash flow? there has to be balance and a demonstration they are able to deploy funds where will create the most long-term shareholder value. for the most part, you look at the deals that have been done with glencore over the last year, you can see a clear route to value. so far, i think it has been an appropriate and good actions

management have been taken from acquisitions -- taking from acquisitions. tom: here is a chart of glencore. it shows percent change. i loaded the vote here and sold my bitcoin in 2000 and loaded up on glencore. ando loaded the boat here he has had this move shot up. all giggles aside, david, how does glencore breakout to a new price level? david: if you look at earnings power and strength going forward, i think you see both coming from a number of different areas. one is their core trading business. it seems to move from strength to strength. this even has a downturn and will represent 30% to 40% of their even. this continues to get stronger and stronger. if you look at their three main commodities, copper, in particular, it has bounced a

little but it has not bounced like other commodities. copper is a commodity that has a very steep cost and we believe there is still room for the price of copper to move up and the demand. all this talk of this happening, if it moves to a look through -- electric drivetrains, it will be good for copper because it almost doubles the amount used in automobiles. this whole tech revolution is very good for copper. coal, aey mine zinc, lot of things that remain on a moderate growth space. given where debt levels are today, which is manageable, i think there is room. we still believe that glencore, even though it has had this one from the bottom, is still

significantly undervalued. francine: thank you. a disclaimer, the chairman of bloomberg lp is also a senior independent, nonexecutive director at glencore. we want to make things clear for everyone watching david herro. stays with us. if you have any questions, you are free to do it. and puto tv questions to ask david herro using the id underneath the video screen. this is bloomberg. ♪

♪ this isine: bloomberg surveillance. >> payoffs on the wasted the ponzi scheme. the company will send out checks million.$584 so far, victims have received more than $11 billion. half of those will have the covered the entire amount invested. weak holiday sales made caused toys arrest to close at least 100 stores in the u.s. u.s. sales have fallen in the

chain by about 15% this christmas shopping season. toys "r" us filed for bankruptcy in september.the biggest u.s. pension fund is trying to reduce its risk. california's state employees pension fund is boosting their fund 28%. some say it now may not be the best time to risk exposure to stock because of tax reform. thank you. with us is david herro, manager of the year, international fund manager of the year and decade. we're waiting for the century waiting forare manager of the century. of the active passive debate, not state the case for active managers, but provide us with

the distinction that active managers can provide. david: active managers have the ability to invest in businesses which are intrinsically undervalued because of short-term reasons, or as often pass as managing means -- management needs putting money into a share because it is moving or selling down. so it is the opposite of the high.with buy low, sell this is one of the problems with passive management. because ofattention price movement, not because of changes in intrinsic value. the problem is a lot of the active managers do not outperform so people throw up their hands and they invest passively. we believe if you have a sound philosophy, and if you execute it in a disciplined fashion, like we do it harris associates, you can outperform over time --

upperform overtime. our funds have done so over time because it is predicated on using a valued philosophy we can execute consistently and in a disciplined fashion. francine: there's a lot of angst still. is it all going to amount to nothing or are there concerns out there? are the winners and losers? david: there are winners and losers. it is just annoying. it is more regulation that is addressing the problem that probably was not as huge as the regulation itself. when you do this, it causes all kinds of distortion and disruption. francine: will the worries go away or are they well-founded? david: eventually, it will be adjusted to. i think the worries are probably overdone. it will be adjusted to. again, the more complicated and difficult it is to it here to

regulation, -- to adhere to regulation, the less effective they are.i believe in regulation, by the way . i'm a strong believer in. it should be simple, understandable and address a problem directly. i do not think this is necessary -- necessarily that type. tom: david extends the answer with a question about the minnesota vikings. david herro from london, thank you so much. 7-7, green bay packers. francine, it is embarrassing. no wonder he went to london. thank you. next hour, must watch credit suisse. this is bloomberg. ♪

♪ tom: this morning, all eyes. republican and democrat allies are upon the senate

parliamentarian. democrats are offended by defending portions of the tax bill. republicans need a win and they need it now. the house will vote. what will the senate and senate parliamentarian do? parliament, out eyes are upon the cabinet after by me if europe creches british trade assumptions. the city is on call. witht was a bull market all eyes consider down 25,000. good morning. this is bloomberg surveillance, live in new york, i am tom keene. with francine lacqua in london. she does not pronounce it parliament, but this thing with head guy, europe, the wrote an essay in the guardian, and it is important. francine: it is important. i find it important because

there's not that much in it that is new. it is facing the eu getting a high line but they went to the trouble of going to a newspaper that is domestic and that is quite significant. he is trying to get the message to the citizens of that these are hard lines. -- citizens of rate britain that they have hard lines. tom: kevin cirilli will join us, jonathan golub will join us. and for your first word news contacts, here scaling lines. >> senate republicans need the votes to pass the tax bill. collins had previously said she wanted to review the legislation before deciding. state, federal investigators to an amtrak train was speeding before a fatal derailment. that data recorder said it was going faster in a 30 mile per

hour zone. the train hurtled off an overpass. it was making its first run along a faster route. as mentioned, the eu chief brexit negotiator is taking a tougher stance. michael barnier says they will not be carveout for the financial industry and warned that once it leaves the block, the eu will have to follow any rules passed by them during the transition period. saudie first time, arabia's budget deficit has fallen below 10%. they had been cutting spending and reducing subsidies since then. they're preparing to unveil a budget focused on measures to boost private-sector growth. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you. equities and commodities, when screen today. not much going on, which means we get longer time with kevin

cirilli. futures up and the euro advances. what do you have? francine: this is what i am looking at. this filters through a lot of european stocks. i'm looking at treasuries. they're pretty much reading sideways. a lot of the core bonds in europe are declining. very good. kevin cirilli is with us in the hallways of the capital. maybe you would recognize the senate parliamentarian. he helps us with the house vote today. what is the goal of the democrats as they go into the minutia of the tax bill and say, that does not playing by the rules? kevin: just that, they went to hammer this is not playing by the rules and only benefiting the wealthy. if you look at polls, they suggest that right now, this is a deeply unpopular tax reform bill that democrats about richest -- out message to the republicans.

tom: what has been the impact in the last 24 hours of sunday analyses? we see the more conservative shop with a 1.4 some in trillion, and i saw a couple reports, including mr. hogan will be with us, nudging towards 2 million in deficit. does anyone care about that? kevin: i want to talk about a perfect illustration, senator heidi heitkamp, a centrist democrat from north dakota. she was giving a town hall and she was saying in it that this is only going to help the wealthy. i think that is the key indicator of where the entire democratic party is. she did note this could see this could see some lowering of taxes.at the end of the day, she criticized it . on board ins are opposing this because she is a very centrist democrat and one with a growing voice of the party. tom: there is a boom economy for

a certain portion of america. where halls of congress, are the republicans that are listening to the people? we have republicans on my right in the house that will vote against this bill. is that because they are listening to their constituents? kevin: just a handful. i would put it at maybe 15. they had concerns about the state and local tax deduction, especially republicans in new york or california. we have reported on this for week about those concerns that they ultimately were not able to get to a yes. they will hold that line and about $10,000. on the flip side of that, these deficit hot, in particular -- might these deficit hawks come back in full force january because they will pass the funding bill second half of this week, likely friday, kicking the 20.until january

that will force the administration to have to deal with democrats on the issue of immigration. when you start talking budgets, infrastructure, those deficit hawks have a lot to say about that. francine: how different is this tax bill to what we were talking about five weeks ago? and good morning. kevin: good morning and happy belated birthday. different.of first and foremost, the corporate tax rates we have been talking about this for weeks number.ards to the 21% originally, the president had proposed 15%. the number of tax brackets is going to stay at seven. i remember chasing lawmakers weeks ago, trying to get the number of brackets they would fight for. they're keeping it at seven. this is not by any means the more ambitious version of the administration version. it is, we should note, the president is on the cusp of his first legislative victory. francine: what does that mean --

again, when we look at details, is there anything that can give a lift to stocks or sectors that can benefit that we do not know about yet? kevin: we have seen the real estate industry benefit from a last-minute provision added over the weekend when they were hammering out details. there was interesting back-and-forth yesterday with senator bob corker, who is now on board. he says this was made in an effort to get his boat -- he says this was not made in an effort to get his vote and a lot of people speculate. this has continued to move forward throughout the year and it will be interesting to see next year, once, assuming they where theeform, market and congress seems to like. probably less so with whether there is a prospect of a government shutdown and more so with infrastructure as some

not quitethey are ready for. tom: kevin cirilli, thank you. --ning us now is john, jonathan golub. he is from credit suisse. he is someone who does not know what cash is. we are talking about the perspectives of a tweet. here is the president. this is moments ago. he did this for jonathan golub. president trump, for watching bloomberg surveillance, in all dow rises 5000 points on the year for the first time ever -- make america great again! let's go to the chart. --e is the john goal of john golub market and here's the presidential election right here and i him sorry, but the downdent has a point,

25,000. every president in a bull market wants to take credit for it. . john: if trump were running again, the unemployment rate is down, the market is better, whether or not this is because of anything he has done is somewhat academic, but the market have been terrific. this is not a politically driven market. thank you, mr., for watching. the basic idea of your 2018 report, give us a look back on why? if the president did not drive the market higher, what did? jon: basically, the economy across the world, u.s., china, europe and japan are all basically running stronger but they have been running stronger since the middle part of 2016.

so, earnings revisions come out and ago, we were wrong and they go down. i saw a chart yesterday. i cannot remember. right now, the revisions are going up. typically, wall street analysts start weight too .ptimistic the numbers held perfect the flat, when the earnings have come in much better. some of that is the technology sector and some is the fact wages have been weaker this year and that is good or profit margins, so you have better topline growth and wages have not kept up with that, which means corporate profits are good. there is also volatility is down in that allows you to pay more for a stock if it is less risky and volatile.

there is a whole bunch of things. the tax is maybe the icing on the cake but that is all it would be. francine: that's price in. -- let's price in. if we do have signs of the tax cut bill in the next days, will we see more of a rally? john: you will see more of a rally somewhat, maybe a few percent. i think there are a couple of questions. number one, how does this impact the real economy? we do not know. we are hearing anywhere between 20 basis points and 50 basis points on the upside of gdp. tom: i am teared up. show this chart quickly. look at this. 20,000, 25,000, my 401(k) is great and. meanwhile, let's talk about the tax bill. coming up, and imported interview. jonathan golub with us and

later, two fed president's. this is bloomberg. ♪

♪ this is bloomberg surveillance. let's get the bloomberg business flash. the belgian food distributor grignard is in talks to buy dole foods. they say they have secured appropriate financing but there is no assurance of a deal. they are valued at $2.3 billion, including debt. two major engineering and constructing companies have

agreed to combine. mcdermott international will pay $6 billion of stocks to buy another company focused on the industry. a social network access the german cartel office paints an inaccurate picture. facebook says they are not allowed to create projects and force people to use them. tom: thank you. with this is jonathan golub of credit suisse. he has been able throughout this she has been a bull throughout this market and here we are, we forget a bull market, a bear market, a correction, and with that, investors get a little cocky. where's the overexposure now? where is there too much of this into next year? john: i think the concern about where valuations are probably the biggest mistake people are

making. if you have low strong earnings, low recessionary risk, if bridges are under control, i think the excess is in the concern people might have that this is ahead of itself. i think people may be leaving money on the table. do not know that answers the question you are asking. francine: that is good enough. a mark. if you look at markets in general, what is the most unloved part? john: i mean, there was a bunch of stuff unloved. i would argue most days -- most of it has reason to be unloved. if you look at the health care sector, the multiple has collapsed. most of that is because the growth profile of health care companies has fallen and they are getting less of a bid. i am not sure they deserve -- i think they probably deserve to

be a bit,. if you look at -- a bit unloved. if you look at what is truly loved, many of these bond proxy sectors, or if you look at philip morris, they are trading at huge multiples on weak growth. that is where multiples appear to be stretched. tech is delivering great results but it is all on profit rather than multiples. i think people missed that story. francine: when you look in to 2018, is it going to be one in the same? is it going to be more of the same for bonds or is there a catalyst that could shift the market significantly? john: we were talking about taxes, but right now, if the tax rate is changing on every single company in the s&p or entire universe, it means every stock needs to be revalued. there's a lot of movement going on.once we get through the process , i think tax continues to look

great. i think financial have a great year, which they had in ok year this year but i think they will have a better relative year near had. tom: i will put this out on radio because a lot of people do not know it. this is macy's, 25 years of macy's, with a big boom up in the bull market. and we come down with the amazon effect with a little retail. i would assume you think retail is a value trap. how do you acquire shares in as muchites buying zara as you can? john: if you look at the s&p 500, the old brick-and-mortar, the macy's and companies like that, they are so small. i think priceline is something like a 10 times or told times bigger in size than macy's and becomes much less important to the market. or the market has been finding greater value is home depot and lowe's and some of the companies

not in the crosshairs of amazon. they have been able to avoid -- that chart would look the same if you are looking at home depot, but old-line retail? tom: even jonathan golub cannot have old-line retail. john: there will be trading deals on this. tom: what is a trading opportunity? isn: trading opportunity opportunities to invest in japan over the last years. tom: bitcoin is a trading opportunity. maybe we will talk bitcoin, as well. coming up, our conversation with robert kaplan. robert kaplan of dallas. and neel kashkari of minneapolis, as well. two presidents today on television and radio. this is bloomberg. ♪

♪ good morning, everyone. tom and francine from new york and london. that is a pretty ugly picture. eu'sonto brexit and the mission. barnier has ruled out a special deal for the u.k. banking sector. that comes ahead of the meeting up theresa may's cabinet she attempts to bring together different factions in her top team. joining us is david merritt. great to have you on the program. this is a hard line for michael barnier or this is a message to

u.k. citizens, saying you want to have your cake and eat it. david: he's had, for many months now, that britain leaving the eu britain has decided to leave the market. he is using forceful language about this. absolutely no way can there be a trade deal. if you look into the details, nothing is changing. he is reiterating his stance. there will be a little more details tomorrow. they will set out their official negotiating lines. that is michael barnier is going to be tasked with using this benchmark in the coming months ahead. really, it is the same thing we have heard all along. the difference this week israel getting more detail from the british side. they have not really -- is we are getting more detail from the british side.

we know they want to do a transition agreement for a couple of years. yesterday, may did explain differences that would happen on the immigration and trade fronts. we are getting more detail but it is very slow. this is going to be a long negotiating period. francine: theresa may enter cabinet have pro ministers. are they behind her now? david: they're getting that impression. boris is warning about the warnings, but -- warning about possibilities, but there's no analysis seems ready to take a job. francine: who is the person you look at? is it corbyn's next move when it comes to brexit or in theresa may's cabinet? david: the labour party has not come up with a clear vision of -- clear position themselves. they talk about something to

keep the economy going without going into detail. we saw that in the latest exchanges in parliament yesterday. i am not sure we are getting the clear guidance from them. it has been a long and weary point to get to this second phase of the brexit talks, but a couple days left until the christmas recess in parliament and there is exhaustion. maybe not only from parliament but us, as well. things will start again in earnest in january. tom: really appreciated, thank you, david merritt, our london bureau chief. we will continue our discussion on the markets and house action today, william hoagland will join us, next. this is bloomberg. ♪

♪ isncine: good morning, this "bloomberg surveillance." . let's get straight to the bloomberg first word news. theoday, congress begins

final step for the biggest rewrite of u.s. tax laws in three decades. house republicans are expected to easily pass the one play 5 trillion dollar tax bill and the senate will follow with approval later today or tomorrow. the measure permanently slashes the top tax rate for businesses from 35% to 21% and doubles the .tandard deduction house republicans have proposed their biggest standalone aid bill in years. they want to spend $81 billion for areas hit by the hurricanes and wildfires. it would be part of a spending bill needed to keep the government friday. republicans have threatened to oppose the bill if there is no aid package. president trump is trying to turn his america first campaign pledge into diplomacy. his firstent outlined national security strategy. he said he will continue to try to work with russia and china as partners. the u.s. is blaming north korea

for -- the attack affected hundreds of thousands of computers around the world in may. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. in the past hour we have reports that a missile has been intercepted over riyadh. joining us is our middle east anchor. what do you make of this news? we understand the missile was intercepted. it's not the first missile that was intercepted. the last was on november 4. >> yeah, francine. we were in a building in downtown riyadh awaiting a bunch of announcements. it really shook things up and people went to the windows and

outside just to see what had happened and there were reports of widespread smoke and it was ultimately announced it was a missile coming from yemen. this is not the first time as you have pointed out. the last time this happened was a ballistic missile on november 4 and the record got very sharp after that. the saudi government was outraged and wanted the united nations to take action. this is arguably going to slightly set off another wave of diplomatic theory with possible wider consequences. francine: there's also the budget and i don't know whether we can make the budget -- a lot of people being locked away in seasons.ur that has to do with corruption

allegation charges and they are paying their way basically out of that enclosure. does that help with the budget? they are trying to cooperate with the anticorruption commission and they understand it is watched very closely that this is resolved in a clear and transparent manner. negotiation's are underway and we are hoping to get more on that with the budget announcement. the saudi government could be looking at a more stimulus approach to today's announcement. tom: when i look at 850 or 900 miles from yemen and northern yemen and where they came from to their fringe nature riyadh to the north, can you say after the second missile attack that the saudi royalty are under attack? the proxy conflict has

escalated. there is no way around that. the last time it happened was the gulf war. we don't know if this was a ballistic missile, but it is not the status quo and a steer installation of what consequences will result from that. tom: i am assuming they are not firing the missile 900 miles from yemen. where are they firing it from? do they have a land rover out in the desert taking a ballistic missile off of a truck or a car or whatever? where does the missile come from? tom: -- yousef: they are coming from -- controlled areas. if that is what we are being told and that's what we understand from our reporting. we are not being -- we are not able to pinpoint exactly how logistics come into play. it needs a substantial amount of

investment of time and resources so who exactly is behind that and how this is being coordinated is a big question that needs to be answered. tom: thank you so much. is in fortunate yousef riyadh right now. we want to go to william hoaglandand -- william and we are honored to bring him -- working with -- ages ago in the senate. this legislation is a lot different than other tax reforms and particularly the tax reform act of 1986, isn't it? william: yes, this will add to over a trillion dollars and that is on the assumption that tax credits expire. doesis a very non--- it not pay for itself and therefore

it is not like the 1986 law, which was designed in a way to be bipartisan. tom: i want to go to paul krugman's asset comments. let's be careful with this. this is some really advanced microeconomics that bill hoagland knows cold. i put this up as a warning to normal human beings. ireland is an example. its gdpp is only 75% of because of all the foreign companies in ireland and it goes on to say the tax wedge in the united states, what the u.s. economy gets in additional production exceeds what we pay out to foreigners. we cannot forget the benefits that go to foreigners because they invest in america. get all of that increase in gdp from a legislation. we only get the wedge -- the tax differential. here is my chart of the year.

i had a previous chart of the year, bill hoagland, on volatility and i am going to the william hoagland area. this is from paul krugman in the -- in "the new york times." all you need to know is this line is a function of what the foreigners do. bill hoagland, we cannot do analysis like we did in 1986 because we are a more open economy. bill: completely. i agree with you, completely that this is a much different 2018 than it17 and was in 1986. it's a much more global economy and this is a much different situation. i cannot follow the chart that well, but i think you are on the mark. tom: i will show it once more because i will get this out to you on bloomberg radio out on twitter. this red box is what the republicans are ignoring. that is the tax breaks for all

the money that comes into america because we are a more open economy. william hoagland, do you know what the deficit is going to be? is it true -- $2 trillion or $1.5 trillion? be $1.5 will certainly trillion when you add the interest on the debt we are accumulating. this $1.5 trillion advertised is on the assumption that the tax cuts are expiring. the rate cuts expire in 2025. some of the other provisions in the tax law expire in 2025. this was designed to keep them within the budget restriction of one point $5 trillion. if you assume you are going to continue the tax cuts, you are well into the $2 trillion range in the next 10 years. i noticed you had the 75% gdp for ireland. when you add this into existing, we already had existing growing debt and we will be into close

to 100% gdp by 2027 and this particular tax bill. francine: overall, is this a good tax bill or could it have been better? that's ancine, i think good question. i think you can certainly always do better. this was a compromise within the republican ranks number not compromised in terms of democrats and therefore it is not bipartisan. my biggest concern is when you have legislation as major as tax reform or health care reform and you don't do it in a way that at least is buy in from both parties, that means it is a legislation that will be debated quite some time and will not have the longevity that the 1986 tax law did. this debate by saying we are going to signify the tax code. i looked through a lot of it last night and it's hardly a certification of a tax code. in terms of the benefits to individuals, i think this one we

have to be very careful about. secretary mnuchin has said this will benefit -- provide a $200 average tax cut. that may be true on the average for all the taxpayers out there, but when you look at the distribution tables that the put outx committee yesterday and make comparisons, you find that varies dramatically. there are some people that will not receive major tax cuts and there are some people that will see increases. we will have to see how this plays out going forward. francine: is there something you -- quiteually change quickly estimate i know you were talking about retirement savings and about -- questions about tax provisions for startups. tax lawyer, but i would have focused on greater sophistication and elimination and a number of credit deductions they claimed they were going to eliminate the pay for, making it deficit neutral and they did not do. this is a tax bill that while i

understand the nature in the senate and worked in the house and senate and congress for a long time and you have to get to the votes and this -- the only way they could get to the 51 votes they have today in the senate to pass it. i understand where they came out, but it was hardly what i call major tax reform. tom: bill hoagland, just remember, boiler up. he will not boiler up. john gollum is with credit suisse. johnn dollop is with -- golub is with credit suisse. john: there's a whole bunch of things they can do. they can do m&a. a lot of companies that borrowed over -- overseas cash will eliminate their debt. the biggest chunk will be to return to shareholders through buybacks which will increase etf

and ultimately it means the biggest chunk will do nothing productive. there will be some pickup in business infrastructure spending, but i think that is aaggerated -- if you needed new machine, you could power for free to do it before and you did not need a tax incentive. tom: i love this. we are going to do this with our single best chart. thank you very much and a special thank you to yousef in riyadh. daybreak" onmberg radio. your morning briefing. in new york, boston, san francisco, washington, and sirius xm channel 119.

♪ kailey: this is "bloomberg surveillance." let's get the bloomberg business flash. more payoffs on the way to the sums of the ponzi scheme. totalingend out checks $584 million. than $11eceived more billion. half of those who submitted claims will have recovered the entire amount they invested. weak holiday sales may force stores" us to close 100 in the u.s. u.s. sales of the chain have fallen about 15% this christmas shopping season. they filed for bankruptcy in september. the biggest u.s. pension fund is trying to reduce risk. fundtate employee pension is boosting the 6 income allocations to 28%.

still members of the investment committee say it may not be the best time to reduce exposure to stocks because of expense -- potential stimulus from tax reform. tom: thank you so much. we showed you an essay by paul krugman, widely perceived -- preserve to be the nobel laureate from princeton and someone very much attuned to democrat theory. columbiabard is at the business school and very clearly identified with republican efforts for growth. here is dean hubbard of columbia with george stephanopoulos this sunday. >> in the short run, it will provide boost to demand and i think the fed would look forward to that. in the longer run, the issue is on the supply side. the tax bill could probably raise gdp by 3% in the long run. that's not the beginning of a new era, but certainly very positive for the economy. tom: the raging debate between the economist krugman and the

economist hubbard. with us is the non-economist john golub who looks at the markets and what all this means. we framed the debate of the tax bill and what's interesting is glenn clearly goes to the idea there's a benefit, but we don't know how much it is and paul krugman says there's a benefit to foreigners we are not taking into account and we really don't know how much it is. there's a huge mystery here, isn't there john: -- isn't there? john: both sides are partisan in their comments, but my problem with this -- you don't know whether this is 20 basis points of stimulus or 70. you don't know whether the impact of buybacks and bringing money back is going to boost earnings this year by 8% or 28%. very hard to pinpoint. todo know it's going increase corporate profits for investors this year.

tom: are they corporate profits for america? you have been one of the great advocates, john. i will give a shout out to other bullish strategists, you have been a great advocate. inequality has clearly opened up over income and wealth. is this going to be a tax cut bill that benefits the markets, that only benefits a narrow portion of america? john: i don't think so and i think sometimes we talk about benefits to rich corporations. corporations are owned by someone and they tend to have pension plans for the average americans. the key here -- this is not about redistribution to the wealthy, it's about equalizing the tax plan so u.s. companies are not at a disadvantage to relocating their businesses in ireland or someplace else. i think the goal here is to bring back jobs to put american companies on better footing and if it does that successfully,

that is good for somebody making a low income or high income. this whole rich, poor argument here i think is off the mark. francine: jonathan, does it help with animal spirits? i don't know if it's to do with companies relocating to ireland or getting companies to reinvest in the u.s. economy. it's unclear whether that will happen. john: first of all, it's absolutely positive for animal spirit and what you are going to see is a surprisingly large pickup in earnings per share on the s&p 500 over the next year or so. the question is how much of that is going to translate into higher stock prices because the really smart conversation people are having is will these tax -- will an employee go to an employer and say, hey listen, i need some of that for me in terms of higher wages in which case it gets moves about

and doesn't stake in the prophet. it ends up with other competitors and overseas -- who owns the tax benefit at the end of the day is not as clear? dollop, we will continue with you. we have a bond chart we will show as well. john golub, you can keep up with the news flow. you can come over here and look at the divergence and you can steal that normalized chart. this is bloomberg. ♪

♪ tom: "bloomberg surveillance." francine and i want to say thank you to our team for a spirited few hours here on television, particularly linking up with riyadh as we did moments ago. very quickly, john golub, he is an equity guy. let's compound golub by showing him equity yields. this is a log two-year yield. when does this chart begin to compete with dividends? remember that -- decades ago? john: we just did a report that

says when the 10 year u.s. treasury hits three point five, markets will be unhappy with that. between now and then, the market wants to see normal rates. it's a sign of economic health. the next 100 basis points whether on fed funds or longer-term bonds, the next 100 basis points will be viewed positive and after that, not so much. tom: francine, pick it up and then we will go to another chart. francine: thank you so much, tom, what a gentleman. when you look at distortion in the bond market, we had an amazing interview with someone at deutsche bank saying where he sees the pressure point in 2018 is german government bonds. what you make of that? john: i agree. if you look at the spread between the bund and treasuries, extremely wide. what is a 10 year german bond, 30 basis points right now? and their economy is reasonably

healthy. europe is experiencing much stronger growth. i think for folks who are looking for a bond market trade, that should converge and there will be money made and lost on that. tom: let's go to your observation on 3.5%. we ripped this chart up really quick and maybe we will do it tomorrow i do the -- give the copyright to golbu. this is log -- slope matters and there is this feeling. how do we get to 3.5%? very few interviews to just we get there. john: inflation is low right now and that will pick up. real yield, if you take the two dollars 35 on the -- $2.35 on -- that number has to go up and i think it will. i'm not saying we will get to 3.5 quickly, what i am saying is if you have interest rates hedge

higher, it's not a problem for the stock market until you reach a level the market will have indigestion. we are not there yet. tom: thank you so much, we greatly appreciate your perspective today. what an interesting few hours. we will drive this forward on radio. jonathan ferro, pimm fox together. we will do that across the nation. london 3 -- that's how they say that. let's do a foreign-exchange report very quickly. foreign-exchange is really quite 1.1259. with the yen

♪ david: are we there yet?

congress rushes tim -- to pass a massive tax overhaul while democrats struggle to find last-minute roadblocks. on the eve of fiscal stimulus, we talk with two prominent federal reserve president about how the fed should respond to tax overhaul. south africa makes a turn. they pick a new leader, making it likely that nelson mandela's choice for president will likely -- finally get the job. i am david westin alongside lisa abramowicz. alix steel is off today and you want to talk about the markets. lisa: every day is a new record. we are looking at an unchanged market in the stocks. the ftse 100 is a little off the regular highs. also looking at nasdaq, futures .1%. nasd