♪ tom: this is a special edition of "bloomberg surveillance." a very special conversation to look forward to and 2018 to help you frame where we are now and what some of the economic and investor realities are. we can do no better than an -- than ed hyman. he has been the definitive voice. maybe another paragraph with a

healthy dose of ed hyman. sharpied, black markings, shut up and read this, that is what he says in his required read. required listening for the new year. great to have you with us. when you get the black sharpie out and you are standing at your desk on fifth avenue, what are you marking up with the greatest intensity? ed: i hate to disappoint you, but now it is all electronic. tom: what are you circling the most right now? ed: what i am circling the most earnings. we can have a good conversation , but at the end it is all about earnings. earnings right now, bottom-up analysts, not from

me, are at 145 for the third quarter of next year and that is without tax cuts. at about $10 and you get 155 and if you were to go three years with growth 10% you get to 200. those are huge numbers and i got through doing an exercise , watching the game tape after khe game, and every market pea was down, now they are going straight up. tom: it is the little things we see through the quarter, through months, through the year of the bloomberg terminal. the other a honeywell, organic growth of 7% are 8%. are the earnings coming next year from the top line of unit and price combined into revenue or are the earnings going to be manufactured by executives down the income statement? ed: the most exciting thing is synchronized global growth. people are making money everywhere. south america, europe, eastern europe china, japan, and sync

synchronized global growth is what is making earnings good now and could make them really good next year. that is the main force, not so much manufactured as they have been, but you can buy a lot of buybacks with the tax cut. tom: that is where i want to go is the use of cash. is the methodology of corporations going to change in their financial engineering or is there still that pressure, i got to perform? ed: they got to perform. i am looking for next year to be the start of a new decade. we have ended a decade of the post-financial crisis 10 years, , it started in the summer of 2007. i am looking to see if things change next year. like the tax cut, earnings get to be better, maybe wages accelerate. the rates could go up as it gets better. i am looking for the next year

to be different than the past decade, which has been slow and steady. which is what i have been focused on. tom: it is the beginning of a new decade and making the headlines throughout december and the campaign and his first day in office, mr. trump often suggesting says a run rate of 3% and often says 4% economic growth. is that rhetoric, or do you have a belief that we could get back with your decade to that kind of gdp that leads to superior earnings? ed: i am not a first responder. i will wait until i see it. so it looks as though the fourth quarter gdp is going to be 3%. that would be the third 3% quarter in a row, the first time in a decade that you have had three threes in a row. retail sales are spectacular for november.

they are up almost 6% for a year on year basis for november which makes a fourth-quarter look better. in the first quarter you start to get tax cuts, maybe lifting confidence and spending. i have that and then we do these company surveys, they are consistent with 3% growth currently already. and then i have an econometric model and it is forecasting 3% growth. none of this has tax cuts in it. i think 3% is the right number to go with right now. i would not rule out 4% if you get the tax cuts. tom: we have the luxury of having you for a half-hour. let's drill in on one of the secrets of your report. you go by it and your company surveys are acclaimed. i think of alan greenspan and his focus on the granularity.

what do you see in the company's surveys right now that gets your attention, is a trucking, electric usage, what is it? ed: you have screwed up my life. tom: i have? [laughter] happy new year. ed: there is so much news out there. i started out doing the weekly report. then i went to a daily report. i'm doing 2 reports a day because it is hard to keep up with you because the news is there. on the company surveys, they have been moving up. they are 54, they were 48 at 48 they are consistent with 1% growth. 54 now, 3% growth. the most exciting thing, we will have to see if this lasts for the duration of this interview. the duration of the way that you time, is thatver

our survey of retailers' pricing power had been going up for two years. time it is still very weak, 28, 0 to 100, and the last two weeks i will get another reading tomorrow, it went to 30. tom: it is a little bit of a lift. so it is upfrom 20, a fair amount. mentioned, upi 5.8%. that is in nominal terms. it includes price. that is the main thing i noticed. the strongest story we have is cap goods. tom: let's go to cap goods. you have seen one of the stories for 2017 was real challenges at general electric. maybe that was the purchase in europe and their capital goods problems and power supplies. do you finally see capital investment, and with it the pricing power at the top line, the confidence that comes in pricing power away from retail? ed: yes.

this week, or just recently, they had the nfib come out. 3 points. i don't know if it is a record high, but it is close. tom: it is a jump condition and confidence. ed: jump and it has been holding and then had a three-point jump. that affects small business. yesterday, they had the duke fuqua survey. this is ceos of major companies, both of them are up and every single survey that we do, every data point i see like durable goods, cap goods shipments, they are all up. so cap spending is stronger than i thought it would be at this point with operating rates below 80%. tom: your offices are right down the street near the abode of the president. can you give him credit for a confidence boost or is this the

percolation of good news on the american economy begin before the election? ed: i'm sure a lot of it started before the election, and this is such a charged topic, as you and i know from our friends. business people i talked to say i do not know what to make of trump, but it is the most is this friendly environment i have been in in memory. and then you have the deregulation and the tax cuts. i think it is understandable from those points of view plus synchronized global growth worldwide is this confidence is up. tom: tell me about the stock market and how you deal with it. it is not just about ed hyman. there is a team of people linking it into the markets. do you have an enthusiasm about dow 24,000 and 30,000 or whatever the number is or not? ed: i am the least guy in my company. i am over the hill and they just put up with me.

on this topic there are a couple of interesting things i will share with you. tom: please. ed: we are going for the first perfect year ever. so 2017 right now, every month for the s&p has been up. that has never happened. every january, february, every month is up. the last time he came close was in 1995, we had one month down, .4%, and it was followed by 1996, which was a 20% increase. it is always about earnings. i do not have a strong view about how much market will go up next year. with earnings up, the stock market will go up as well. tom: there is always surprises in december and autumn, we saw mr. murdock jettisoning some of fox over to disney. and many others we have seen. with mergers and acquisitions. are they a good thing for america, are they a symbol of a good time ahead to see the

larger synergies? ed: you have to focus on it. you have to ask me what i think about it, and you need to think about it, and those are the two big ones. $50 billion apiece. they indicate there is a lot of liquidity in the system and it is being put to work. you can have money, but scared to put it to work. they have the money, they are putting it to work and it fits with da vinci and bitcoin. those juggernauts. but those two in particular, when they happen like on the fox disney, they are going to cut out $700 billion in costs and $700 billion in efficiency. tom: i notice that. ed: when you're on the receiving end about efficiency you are worried about your job. tom: we are going to come back and be efficient with ed hyman. there is so much to talk about. there is a vacancy of a vice chairmanship at the fed.

vice chairman heiman? does that work? stay with us. this is a special edition of "bloomberg surveillance." ♪

tom: welcome to a special edition of "bloomberg surveillance." a look forward to 2018, and we do that with ed hyman terrien right now, we talking about the

larger view. let me go first to this important quote and every time there is an important report there is one phrase that sticks out. we will do bitcoin in a bit. inflation mia. whole foods was selling a 38-foot three on the upper east side of manhattan for $38. the same tree was being sold by street vendors to tom keene for between $150 and $220. amazing. i was the idiot on the street buying the tree. what is the symbolism of an overpriced tree on the upper east side and amazon whole foods? ed: amazon whole foods, there are at least three downward pressures on inflation. technology. competition, like whole foods in the street vendors. and globalization. they are very strong and they are keeping inflation down. lifecam, it is sold

on amazon for $20. the competitive similar problem is nest. i could not believe it. i went out and bought two, he said. there is a lot of pressure on inflation. including the mergers we were talking about. i looked back, and in the 20's you had 4% growth and zero inflation for the last five years. of the 1920's. and the stock market tripled. tom: you provided leadership to the economic club of new york. you sat through countless rubber chicken lunches listening to worthies of central banking. do they have a clue what they are doing? is there a foundation to our central bank work or are we making up as we go? ed: it is differently both. there has been a complete revolution in central banking over a greater time, introducing zero rates and global qe, ecb,

bank of japan, the swiss bank, comic books 50 basis points. , this is wild. within that, and within the wildness of it, we have a plan for 2018. what will you look for from chairman powell? ed: i assume it will be a also if hen, and gets too aggressive, he will get a tweet. there will be some pressure there. tom: there is low rate donald. are you low rate edward? december 13, we saw charles evans of chicago dissent along with neel kashkari, he is in his own orbit, we all agree. was here, he would agree with us. would you say we need to be careful about hasty rate

increases? ed: no. from what i can tell, and i am not trying to be nice to the fed, but they are doing a perfect job of setting us up. they raised rates this week, and we are already for it. there was not a single person that would have objected. every rate increase next year will be the same way. whether it is 2 or 5. tom: you do not care about 2, 3, 4, 5. you are watching the preparation. ed: each of those will be associated. let's say they are five. way beyond what is likely. if they are five, you will get a 4% gdp number, you will get some big wage increases, the employment rate will go below 4% . oh you needill say , to have the funds rate close to three. we will be prepared for it if we get there. the funds rate is 1.5. inflation is 1.5. we still have a zero real funds rate.

tom: do you have a confidence that if we go away from qe to qt, some sort of our tightening, we can do it with stability that is good for american industrialists and good for the american population? you're scared to death of qt. why? ed: i have never been through it. neither has anybody, neither you or powell. they will approach it very carefully. my view is that reducing the balance sheet is the same as raising interest rates. and in the past, the stock market has gone up when they have been raising rates. it has gone up until they finished raising rates. i will watch very carefully but this is a wave out. you have to look on a global basis, you have to look at ecb, boj, and the fed. sheets innce

aggregate will not start coming down until 2019. we are still going to keep adding liquidity. tom: in ed hyman's new decade, will it be a new decade of central banking? ed: got to be. we have to get off of qe. for the past decade it has been the decade of qe. the next 1 -- the only question the next decade kills us, but it has to be a decade in which we do it. we get the fed balance sheet down a couple of trillion and work down the doj and ecb balance sheets. tom: do you own any bitcoin? ed: i do not. i wish i did. i kick myself for not. i have a couple friends who have. they are having a good time. i think i should buy some just to be in the game. tom: top of the market. beware.

that is what we will talk about. ed hyman with an important observation on bitcoin. it is certainly the theme of what to do with this thing? 2017, we are talking too much about it. we're not talking enough about it. ed hyman on bitcoin. this is a special edition of "bloomberg surveillance." ♪

tom: this is "bloomberg surveillance." the year ahead. we are thrilled you are with us for the holiday season looking into 2018 with ed hyman of ever core isi. i never thought i would see ed hyman worried about bitcoin.

observing what it means within the mix of his economics, his finance, his investment. you say it is a canary. is it a canary in the goldmine? -- in the coal mine? ed: it is a canary in a coal mine, but i misstated it. it is an indication of all the liquidity in the system. it is not an indication that we are about to die, which is the canary in the coal mine. tom: fair. what i see is basically incredible liquidity in the system so you have qe, rates are low, and money growth is rapid. you get something like the da vinci, $450 million and then you have these deals that happened like the fox-disney deal my and then you have the bitcoin. don't you get it? there is something bigger than

any of us right now going on and then you see the stock market going up and up. of course excess money can buy , bonds. that is why bond yields are so low. the price is up. it is that simple. within this is the religion of many decades ago, it was a thursday the world stopped for m1, m2, m3. if you see a lot of money sloshing around, that is the liquidity of the moment, how do we escape from that or is it something we should not be concerned about? ed: escaping from it will be -- i am pretty bearish longer-term. i'm not going to get in front of that for the short term. in terms of the money supply, i met milton freeman when i was 23 and i fell in love with his thinking and his intellect. now i have decided that excess money is creating excess supply. not excess demand.

it has almost become deflationary. that is the odd thing about what is going on right now. tom: in the time we have left, i want to look back decades and all the political tumult we have seen through the election and the elections in europe as well. are you optimistic about american exceptionalism, your optimism on earnings, that is a corporate thing, or optimism on a central bank that can get out of qt, maybe? do you have an optimism about america? ed: the way you ask it is a little bit not the way i think but i am a very strong observer , of what i see right now. which does not tell me necessarily what will happen in five years, but when i travel around the u.s. and you and i have talked about a most every place i go to is booming. boston is doing great. minneapolis is doing great.

seattle, and san francisco, and l.a., washington, d.c., atlanta, and all these places that i visit, nashville, des moines, iowa. salt lake city. the u.s. is doing better than a lot of people think, and with retail sales up 5.8% year-to-year i am going, yes. that is what i see. an unemployment rate of 4.1%, that is what i see. the u.s. economy is doing well. this is the first tax cut that is being applied to a strong economy. tom: it is unpopular with the public. is the tax cut a good thing for viewers and listeners? ed: it is good. they said it will increase the deficit by $1 trillion or $1.5 trillion, so i guess that means it will put that much money into the economy. i think if they do that, it will be good for some pieces of the economy, the corporate sector. we have had tax cuts since

seven kennedy. including kennedy. the average unemployment rate was 7%. tom: we are lower than that. we might get a three this year. thank you. a view forward to 2018 with ed isi, theircore chairman. that is it for our year-end look on television and radio. thrilled you have been with us. do not forget all of our work in 2018, where we will look at the best of economics, finance investment, international relations, and local politics. -- and global politics. have a great 2018. ♪

♪ tom: in this half hour, a conversation with mario gabelli on investing on value. 2017 and began 2018. you will only make single-digit returns. year,fter near year after the reality of good, and outstanding double-digit returns in the stock market. on investing, on value, must-listen worldwide, mario

gabelli. all part of the "bloomberg surveillance" year end special. we talked to your partner in crime the other day. who's counting? like youe optimist stay invested when year after year there is a theory in certitude that we are going to grind out single-digit returns? mario: that is a great question. when we look at a company, we are not buying a stock or did we are buying the business. how is the business run? how does the management come to theiro make money for shareholders? how do they deal with the cash flow? what will the company be worth in five years? we gather the data, collect, and interpret. we say, where is our margin of safety? some years we are going to be down. we had been down for-five years.

tom: what is your worst drawdown ever? 30%? , october 19-26 of 1987, the markets were down 30%. tom: you celebrate your 40th anniversary of doing this. one of the great things about in theabelli was he was trenches of security analysis. you did it in the trenches. li in 1977.gabel what did the young kids miss today about the big market drawdowns? ,ario: very is electorate recruiting schools, you can feel the interest, including the academics, about cryptocurrency,

bitcoin, blockchain. they don't say how many are there in circulation or what the price is, and it is a $250 billion market cap. they want to go to 100,000, the amounts are staggering. it from thatook at dimension. they look at it as something new, exciting. they have never been burned. you have to expect that. tom: we will talk about industrialism, the broader view that mr. gabelli has for 2018. this is fun. from hismario gabelli work over the years, that is onead a punditry example. let's go to individual stocks. i walked out on the set, and here i was with my daily dose. its and snyder's

pretzels. like the pretzels, but i like the old-fashioned sourdough or give us a history of how you try to make profit with snyder's of hanover. consumer today loves snacking. you were eating that yesterday afternoon. we have been following lance for a long time. they merged with snyders, the pretzel company. things technically and technologically, that does not take a great deal of mindset to understand p or do take a bite and you understand. they bought the company, they ofued stock, out pennsylvania, became a large shareholder. they did direct-store delivery, ofy changed the distribution 2-3 years ago they bought a company called diamond. tom: the nut people.

mario: as a result that company went up sharply, they had a problem where they did pricing, the stock came back up. yesterday afternoon, yesterday being the middle of december, somebody speculated they were schmoozing with someone. perhaps talking about a deal. the nice morrison of campbell soup with -- denise morrison of campbell soup would love to own a snacking business. stock was up five dollars yesterday, it is up today. 100 plus million shares, that is what we talk about. tom: we want to talk about how impatient, a lot of people will have eight patients with bob iger. with your expertise in the media, you see the moon shot of disney, now the shock of 2017. first of all, have you spoken to mr. murdoch or mr. iger?

mario: no. the stock came out last week. i deal with the public knowledge that everyone has. when eisner was running it, and when i would write stories in the 1960's, ger,pendent of that, i he was hired to run cap city, they merged to abc, they merged to disney, and he has done a great job. the global marketplace, seven point 5 billion people, 60 years ago there were 2.5 billion. mobile phones, you can watch television. i can watch tom keene on a mobile device. there are 4.5 million of those.

how do you deal with gen z and gen y? then netflix, then you have direct to the consumer with a product. the old media has content, but they do not have that -- tom: distribution. challenge. is the rupert decides he needs scale. he is looking at these behemoths, these giant companies, google, amazon, they have market caps of $6 billion to $8 billion. is $500rtising pie billion, and digital is taking 40% to 50%. he spun off news corp. he controls that. he is saying, what do i do? is doing theer same thing at disney. how do we get into the global

marketplace? tom: from snyder's pretzel to the media, you have to know where to go 12 months out, five months out, you're the king of patients. -- of patience. you want to keep what you take. tom: i remember a million years ago, you owned john malone, telecommunications, what do you own now, looking out to 2020 or 2025 in media? mario: globalization. we talked yesterday about the net neutrality concept changed. truck onriving a big the george washington bridge i will pay $20 or $30 as a toll. in net neutrality, they are changing that. if you want unfettered content, you will pay me.

world haves of the been using someone else's highway. that will create a new echo system. a wireless company, like verizon, that is well run can generate significant returns paying 5%. it has a $100 billion market cap. how they go global, direct to consumer? tom: are you attracted to the 5% dividend of verizon and use gabelli patience? mario: what i'm doing is global. tom: names. mario: mellow colum -- millico m. the cable and television operator in latin america, columbia, paraguay. merged with will be lilac, the company that malone

has fingerprints all over. it will work. the stock is $55 to $65. they will sell african assets and make 50%. 50% in three years a 17%. it pays a dividend, which i hope they eliminate. in the united states is a company that is undervalued called u.s. cellular out of chicago. that guy that runs it and i have had arm wrestling saying he should buy in the 90% he doesn't own. the stock is trading at $35. they are not done a good job at enhancing shareholder values. they have wireless, power assets, spectrum to sell, 48% in l.a. in addition, there are smaller ones. at&t-timeconds,

warner, should the government let this go through, this vertical combination? mario: at&t has a $200 billion half cash half stock. k there are certain aspects that maybe they want to examine. balanced vertical mergers r.o.k.. disney is more challenging in the sense you have 2 movie studios coming together. on the other side the world has changed. dylan got a- bob nobel prize for his song "times they are a changing." tom: we will be doing 5-6 hours of mario gabelli. coming back, do you own ge? we will find out if mario gabelli owned ge.

stay with us. ♪

r ahead special. we will do a little bit of

economics later. right now mario gabelli on next year's pricing power. that we haveea challenges with inflation and such, the top line is a general statement, will we have pricing power? theo: that depends on company and industry. to the degree i am selling a premium product to the people of the world, and product they want, what i do is sell irish whiskey. on top of irish whiskey i come up with a product above the jamison price. the pricing power is the ability to pass through higher rising costs, but a particular label that will go up, that you can raise price on existing product or offer a premium product where the price is up. appropriate for christmas time, distilled spirits company have

that pricing flexibility. i believe what you are saying, and i think it makes sense. , did youral electric own general electric and did you write it down? don't like large companies that will not be taken over as our primary. mediumeve in nano and cap company is because that is where mergers and financial engineering will take place here in theopped to $9 financial crisis. we thought it then because we figured they would work their way out of some of the leasing business. 9-8as a small cap stock years ago so we could buy it for a certain mandate. 17.5, ie, selling at suggest we put a few chips down. they have a world-class engines business.

the guy that runs it is terrific. tom: here is the money question on ge and leads to a new conversation on industrials. i would suggest flannery's timeline is different than 10 or 30 years ago. the new five year plan is a new three-year plan to the new three-year plan is to conference calls. the timeline shrunk from management performance? mario: i think it is different. hisinvestor has relegated understanding of a long-term creation of american industry, american wealth. how do we do that in the future? they become more instantly oriented. the surrogates, the etf's, electronically traded funds, they are buying a piece of paper, a commodity. as a result they have lost their governance. they don't know how to govern in the sense of how they vote.

they will vote for cobalt in africa, but they will not vote necessarily for the company specifics. they have not been set up economically to do it. stocksere are successful were it is a linear succession of prosperity, up, up, up. how do you find companies that are mid-cap or lesser mid-cap where you say this isn't a take out, it is a true gabelli buy and hold. mario: our holding. period is 10-12 years. our portfolios have turnover, because when warren buffett. precision castparts we would not have sold it. they bought it for stock. we would have still owned it, it, so thatuys closes the turnover. in do i look for niches

the industrial world? we have a pennsylvania-based company for 15 years. they take their cash flow, they have very little capex reinvestment, good cash flow, largely domestic so they will benefit from the new tax changes. management says where do we find these little niches? they bought a company called ofon and they will do a lot benefits. today we are looking at companies like rain that have capabilities. also large companies. honeywell has done this very successfully. moonshot, what did david do that was so extraordinary? mario: he tried to make love to ge? mario something, broke the deal in europe. what is left of ge? they are getting skinny to get fat, going on a corporate diet, leaning out.

businessesad good with a strong tailwind. tom: is the trick to a honeywell and other success stories, is it not what they do, or is it what they don't do? is that the trick? interestingis an question. looking at the different facets of what makes a company, i like a good business with a moat around it that they protect, whether it is a niche that is so small that no one wants, and how you allocate cash flow. what makes buffett so unique question mark's ability to figure out what railroad engines do? how do you allocate cash flow? no, micro caps, small -- and we are seeing these emerging in the global marketplace. sometimes you have the ugly duckling. when hertz rentals was spun off

had donez, hertz stupid things. we knew the larry fink's of the world could not own them. to stock is grown from 28 63. tom: we will come back. mario gabelli talking auto leasing. you mentioned the tax legislation, who knows where that is going? we will talk with gabelli about the state of the nation. mario gabelli on the trump administration and the view forward. stay with us. ♪

tom: "bloomberg surveillance." we are looking at the year ahead, it is good to do that with mario gabelli. he isnot grizzled,

vibrant and working day after day in a new country in a new place. you came out of fordham prep. path ofan interesting doing securities analysis from the beginning. what is the state of america that is so different from when you came out of fordham prep years ago? mario: not much. you have to put in the effort. instead of working 9:00 to 5:00, the second part is you have to have achievements. how do you put it all together? the notion of staying focused where your passion is drives a lot. so, that has not changed. when you look at this country, i graduated from columbia business school and i owed money. what allowed me to be successful, the rule of law, the free market system, with all of its problems and need for life support, like earned income credit to be very helpful, and

meritocracy and education is the foundation of that. that is why we give back so much. tom: you have been front and center with philanthropy. you did it when no one knew your name. you did a fitness center on the west coast. stay with me on this. you are part of the donor last year do have been part of the donor class. how does the donor class, this each in the tax debate, how does the donor class bes -- this tax debate, how does the donor class respond? mario: we have a unique experiment in this time, to continue that process and allow those elements that work to continue to work. we have to have open and friendly debates. we have to have a philosophy of nurturing everyone.

student that is a problem we have to solve. tom: what would you do about student debt? mario: i had a lot of scholarships, but i did borrow. essentially, allow the students have interested action, allow students to take intellectual property and appreciate it against earned income so you have some kind of steak. the third part is what governor cuomo of new york is doing and enlarge the base of free education. go back to a basically -- you have to be smart to get into certain schools, live with that, then have education open. re-educatee see -- seniors who are being displaced by the education dynamics. we were here in 1944 when we created project manhattan. we said let's focus on this issue because it is dragging down the millennial's, the gen

z's, and their parents in the system. that has a phd in quantitative finance, you would dismiss him in a heartbeat? what do you tell the math-centric investment person today? how do they get the tangible, management analysis? mario: independent of that, we like to have social media, we like to have coders in our firm. phd's aren, our hungry and driven. privileged, hungry, and driven, maybe. you have to fly from paris to shanghai and everywhere in the world. tom: i've never heard you more global than you are today. greatly appreciated. a terrific perspective on a few forward with a more

international view than i expected. mario gabelli chairman and chief executive officer of gamco investors. so much more to talk about. from "bloomberg surveillance" this year, from our entire team, we are looking forward to 2018 because we do not have a clue as to what will happen. edple like mario gabelli, hyman, and others will try to give us extra wisdom as we move forward. from all of us at bloomberg, we can say have a great 2018. ♪ is this a phone?

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>> welcome to "bloomberg businessweek." >> we are in the magazine's headquarters in new york. >> this week, the #metoo movement. impacting the institutions that help define masculinity. >> and protecting the wild. >> and in a special section, what business is doing to help the world. >> all that a head in "bloomberg businessweek." ♪