>> we have to look for the risk of some shock effect coming in that distorts the euphoria we have been contending with. >> i'm not running away from u.s. stocks. the idea is to begin a broader market? >> next year we could have shocks from trade or fiscal policy. >> the higher rate start to bite and i think the fed will have to bite at some point. >> just recognize the range of outcomes will be wider. >> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. lisa: good morning and welcome back.

good news is it is friday. bad news is it is friday the 13th. the s&p poise for its first weekly loss in a month. there is something spooky going on under the surface. they were been nine consecutive days with more declining stocks than gainers and that is the first time that happen since 2001. the state of play is as follows. futures trying to claw back the losses. nasdaq futures leading the charge again as they have throughout this time. dani, what strikes me. we can make all of the puns in the world, the breath is not so good. dani: it is not so good and it is happening at the end of the year and earnings season. you see broadcom up 14% versus adobe falling 14%. as stocks get more expensive you have this idea the margin of error is thinner.

you do not get stocks falling together. you get bad breath in a market that is more difficult to navigate. lisa: at the same time there is money flooding into u.s. equities, poised for a record 480 billion dollars of inflows this year into u.s. equities. how much of the hit cup is the idea we are facing policy uncertainty and waiting for the optimism to be borne out. annmarie: a ton of policy uncertainty but there is u.s. exceptionalism. the global equity benchmark is closing at one of the worst weeks in a month. policy uncertainty, tax cuts. canada mulling ideas for retaliatory measures that could be inflationary. yesterday donald trump came out on the dockworkers. does that mean we are going to have a protracted fright -- a protracted fight when it comes to the dockworkers and imports into the united states. dani: risk markets do not seem

to care. i thought michael hartnett was interesting this morning, he says the thing that disrupts the equity market is not policy, it is central banks. he says the time to stop buying equities is when the fed turns hawkish, not anything to do with the policy. lisa: maybe we'll get that opportunity next week. we expect the fed decision on wednesday at a time where it is expected to be 25 basis points. i feel like christine lagarde offered up a note of caution yesterday where she came out and drop the idea of sufficiently restrictive rates and there was this selloff on the heels of not enough dovishness. to dani's point, it seems like there needs to be an overly dovish feeling to justify some of the moves we are seeing. annmarie: potentially we will get that next year. it will be when the central banks move. what is the catalyst to the moves and is at the change of policies when it comes to the

political economy. all of that is sitting around washington, d.c. and a very protectionist administration. lisa: coming up, chris verone of strategas, wendy schiller as trump continues doubling the soft and leland miller as china signals more fiscal stimulus. tech leading stats higher. chris verrone looking ahead to next year. "today the average 2025 s&p forecast is just about 10% higher than the current levels. the bar of expectations for the market is higher today than it was a year ago. with sentiment hot, there is small room for error in the first half of 2025." welcome back. i will not go with the puns. what you make of the fact we are seeing limited breath or bad breath in the market with so few

stocks gaining amid the recent ekeing of some of the tech stocks? chris: this is two weeks of squishy internals, not two months or two years. the entire year we have had between 70 and 85% of stocks. this is been relatively broad for most of the year. the bar has to be higher before you say the breadth is deteriorating to such an extent where it since an awful message about what is going on under the surface of the market. i don't think we are at that point. december could be a choppy period. the question will be does the market justify or does it continue to justify the level of bullishness that is out there? you start the segment talking about the expectations for next year but as analysts we have to ask ourselves is the market still living up to the hype and that will be the big question over the coming weeks? lisa: what is the hype?

is it earnings, is it policy, is it fit? -- is it fed? chris: there is this awakening of animal spirits. the attitude from the sell side today are remarkably different than they were a year ago. the street was looking for unchanged s&p in 2024 and we are up 25%. there is currently -- there is clearly a reset of expectations. i do not think that is catastrophic, but what we have tried to answer is does the market justify that level of enthusiasm? i think the answer is largely yes. i think leadership is still procyclical. the margin for error has to be smaller than it has been in the past because the expectations are high. interestingly, you hint at europe. the set up is the exact opposite. in europe the expectations are remarkably low for something to

go right. it can be china getting better, it can be peace, it can be any number of things. when you're talking about 40 and 42 pmi in france and germany the bar is low for something to go right. dani: a low bar for europe and china, a high bar for the u.s.. you've been on a tour talking to clients in a majority saw the next move being 10% lower than the s&p. chris: we've been on the road every day since the election, it has been busy. what has been a consistent feature of our client conversations is the unleashing of animal spirits and then something happened over the last week where attitudes have shifted and become a bit more restrained. i do not know if that is an outlier or people are seeing something but on balance if you look at all of our sentiment, empirically they are falling somewhere between the 85th and 90th percentile historically.

we are in the zone where you have to watch your back a little bit because it is never what you know that hurts you, it what you don't know. there is something out there we are not thinking about that could be an issue. dani: this is the thing. you rightly call out the forecast this time around was a gain of less than 2%. it paid off to fight the bears, it paid off to not listen to them. how hard is it to fight the bulls and fight momentum like this even if at times it seems on the edge of euphoria. chris: you see it in a couple places. credit conditions are remarkably benign. if something meaningful will shift you will see a deterioration to credit. secondly the leadership on balance is procyclical. if i am going to change the call , i need the consistent stuff to deteriorate and neither credit nor leadership have to any meaningful degree.

the three things to watch to shift opinion is to notice how postelection equity volatility and bond volatility have collapsed. currency volatility has not. if something is public or brewing we are not focused on, maybe it emanates from the currency market. dollar looks like it could be higher. we have seen the move in the euro. if something is brewing that is unexpected it probably comes from currency, not from credit rates or equity. annmarie: when you're talking to clients who think in the last week, those final clients think we could see the 10% pullback, is the reason because of the policy uncertainty where they think we are getting too lofty with the valuations? chris: it is more the latter. there is an embrace of what the proposed policies are. we were talking about this casually yesterday in a meeting. there is a 1980's feel right

now. it is certainly not lost on me. speaking in the context of sentiment, is emblematic of an environment where the bar has been raised. the expectations are pretty lofty going into next year. historically, when you have had a change in power at the market tends to run until the operation than the sprint is just a jump. i'm not opposed to the outcome but we will call as we see it. annmarie: you been constructive on china. what you make of the latest we have heard out of china in terms of looser monetary policy but still thin on details? chris: we have said it is the markets opinion that matters. i think the way the market has interpreted the hints of stimulus you've seen over the last several months is different than how to interpret everything else the last two or three years. the momentum surgeon some temper was significant and the

consolidation in the months that followed was benign. you get renewed signs of life this week. consumers -- it is odd for me if we are still in a black hole recessionary environment. the financials act pretty well. chinese tech is breaking out. it would be silly not to be open to the idea that something was changing out there. what i encounter traveling and talking to clients is resistance to the idea that something is changing. most people do not know china is outperforming this year. nasdaq is up 25. it is already happening and there is a complete disdain or neglect for it. lisa: we just saw the biggest inflows into chinese stocks going back nine weeks. we do see some acceptance of this idea. putting all of what you said together and given how high the bar is in the u.s. and how low the bar is in europe and in china, are you overweight europe and china and basically shifting away from some of the high calls

in the u.s.? chris: we are not overweight those parts of the world yet but it is a good exercise at the end of the year to reset the chips act and get closer to the benchmark and i want to get closer to the u.s. benchmark. i want to get bigger elsewhere. i think there is the potential for good surprises in other parts of the world. if i can make one last point i would encourage everyone to look at the european defense contract. they broke out at the start of the war. his imminent peace brewing in that part of the world? i want to be open to that. lisa: i want to be open to that too. chris verrone of strategas. i think we can officially launch happy holidays. let's get you an update on stories elsewhere. here is your bloomberg brief. yahaira: the suspect charged in the killing of the unitedhealth group ceo was not a customer of the insurance. luigi mangione and his mother were not members of united

health care, dispelling the idea the shooting was motivated by a personal grievance against the country's largest health insurer. luigi mangione is held in a correctional's facility in pennsylvania while he fights extradition to new york. canada is considering imposing export taxes on commodities like uranium and oil if the u.s. imposes broad tariffs. the move would drive up costs for the u.s. consumers and businesses and risk causing political divisions within canada. according to officials familiar the export levies would be a last resort for the country. broadcom shares are rising 13.9% after fourth-quarter results beat expectations. it's artificial intelligence revenue growing 220% compared to the year prior and that iai growth shows no sign -- that ai growth shows no signs of slowing down. broadcom expects to see 65% growth in its first fiscal quarter.

the overall operation it expects will grow just 10%. lisa? lisa: they just said ai and the right way. it did not really outperform. annmarie: you look at adobe who also did not outperform. completely opposite treatment. think of a what you want. lisa: we will talk about that later. up next, the trump agenda. >> the economy will be very strong. we have to solve some problems that have happened. i want to get them solved. lisa: that is next. this is "bloomberg surveillance." ♪

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lisa: trying to break what would be the first weekly loss going back a month. we are seeing futures mildly

higher led by big tech which has been the driver of any gains we've gotten so far this week. we can see a little bit of euro strength come a little bit being the operative word. dollar strength across the -- yields creeping higher. yesterday climbing through the 4.33 level. a big question about how much this relates to inflationary pressures and how much this has to do with the deficit. under surveillance, the trump agenda. >> the economy will be very strong. we have to solve some problems. we have a lot of things happening we do not have that would have never happened, they would have never happened. now they have happened and i want to get them solved. lisa: u.s. president elect donald trump pledging to build a strong economy and cut taxes during a trip to the new york stock exchange. trump's economic advisers considering doubling the state and local tax deduction to $20,000.

wendy schiller of brown university writing "trump has momentum and has set expectations high about what he and the gop can accomplish to improve the daily lives of working americans. tropical also have the advantage of passing a tax cut bill by the end of his first year." wendy joins us now. i want to start with this idea of the salt tax deduction and the idea there are a few members of congress that are pushing for this but margins are so slim that president-elect trump has to cater to them. what does that tell you about the path ahead and how difficult it will be in terms of pushing through all of these agenda items? wendy: good morning. this is the big mystery about the 2024 election. trump won. he did not win 50% or higher but he won and he won the swing states and it looks like he has a lot of momentum for his cabinet nominations in the senate. the house is a puzzle.

there are no coattails at all in the house margin has shrunk, not only because they did not do better than they should have in 2024 but because he is selecting people from the house and elise stefanik, that is a big reward for being so loyal but she is from new york state, a state that would want change in the salt tax deduction. this is a real problem for advocates of changing this particular feature of the tax system back to where it was or at least improving it for people who come from high tax states. getting anything through the house of representatives -- constitutionally, they originate tax-and-spend bills -- will be an enormous challenge for trump and he does not care that much about congress. most presidents do not care that much about congress but in this case i am not sure what leverage she will be able to use. annmarie: we reported the economic advisors around trump are looking to raise the salt

cap to $25,000 that you have a congressman from new york tweeting the bloomberg stories and saying $20,000 is not reasonable and he will not vote for anything unless it is a reasonable increase. when you take one story like salt, how difficult will it be for republicans to get that over the finish line given that historically this is the thinnest majority republicans have ever had in the house of representatives? wendy: this is congress 11, house politics 101. mike johnson will survive. trump has indicated he wants him there and he will have to work the line, he will have to local. there will be other features of this tax bill that very conservative congressman from particular districts are going to want or need. the second thing is if you want a long roll, if tariffs go in place and you see the impact on farmers, they will need subsidy help. new yorkers come illinois,

california, they have a big agricultural industry in all three states, they can benefit by logrolling for both of those constituencies. this will be house 101. what you trade to get what you need? i expect trump will stay out of it but expect his treasury secretary to be working the phones. annmarie: where are they going to offset the cost for all of this? wendy: offsetting costs seems to be something congress does not feel like they have to do anymore. it has been a long time since the grand bargain and even though the bargain fell apart republicans still got $80 billion worth of cuts in the budget. we have not seen that in a long time under a republican president and a democratic president. where anybody is going to be willing to cut is anybody's guess and the deficit keeps getting bigger. the overall national debt keeps getting bigger. you can think about economic growth or a stable economy. sooner or later the debt will

catch up with us. dani: start out talking there are disagreements over salt but there are disagreements out of phase in these various proposal. john thune once two reconciliation bills. then you have jason smith in ways and means saying we should put it all in one big bill. it will jeopardize president trump's ability to get tax cuts extended. the fact that we do not have an agreement on that itself come on the basis of what the bills look like, what does that mean for timing and sequencing? wendy: this is the big trifecta. the rules of the house and the rules of the senate remain different. the margin in the senate is more comfortable but you stop to think that lisa murkowski and susan collins are wildcards. you do not know where your votes will be. john thune can get that through the senate without a filibuster, reconciliation only requires 51 votes. he is saying to the house if you

want a victory, send me a bill now because i can get through the senate now. we all know that as things move along, the summer, debt ceiling's, appropriations bills, the docket gets crowded. if you want to get something done and claim victory you do it early in the congress. you can see reconciliation is a much more beneficial process because of the rules in the senate. this is why john thune wants to do it now. there are always differences between senate and house leaders even if they are in the same party. mike johnson has very little leverage because he is such a small minority -- such a small majority. he cannot guarantee anything to john thune. dani: you write you need to get some of this through to improve the working lives of everyday americans. is it your estimation tariffs will not be able to be passed because of the impact on everyday americans? that it will not be the stock market but inflation that holds

donald trump back? wendy: i think he will use tariffs selectively now because he said he was going to do it. we see china are not attending the inauguration. no one is that surprised. using negotiation, using overtures of friendship to china rather than tariffs may have been his opening gambit. if that is all rebuffed he will have no choice but to continue the tariffs and imposed new ones. let's see the inflationary effects of those tariffs and the supply chain effects. if we get to june and july and things are crunching, then trump will have to backtrack and that will make him unhappy. as soon as we get to september, all of the house member start looking for the election of 2026. there is not the longest window, but there is a fair couple of months for trump to try to see if he can get that balance right

where he does not trigger inflationary pressure. if he does not fix the price of eggs, milk, bread, eggs, if he does not fix that six month from now the sheen could wear off on him and with an unstable house that bodes dangerous signals for the republican party. lisa: maybe he can change bird for. there are questions with the latest discussions around the dockworkers with president trump siding with them. is this a prolabor or pro-business president? wendy: donald trump is pro- whoever is saying really nice things about him at any given time. he will try to use both sides against each other to negotiate. that is one thing he likes to do. he likes to be the man in the middle, he likes to be the hero committee likes to get a deal done. whether the deal is a good deal or bad deal for parts of the negotiation team, that can be

debated. his team around him will try to get him in the room for his many conflicts as possible to get some victories, which makes him happier, which makes it more reasonable as we progress on a large set of difficult issues. annmarie: wendy schiller -- lisa: wendy schiller, thank you for being with us. is it prolabor or pro-business? annmarie: wendy makes a great point. it is whatever deal is on the table. yesterday he was prolabor when he met the dockworkers. lisa: coming up we will be speaking with leland miller as china promises to backstop the economy, may be fueling some of the flows we are seeing into chinese equities. this is bloomberg surveillance.

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lisa: back. we are looking for a market trying to snap the biggest week of losses back months now. losses have been dominant in the broad market but not necessarily big tech. s&p futures up .3%. nasdaq futures leading the charge come up .7%. russell 2000 futures doing all right. yesterday really underperforming as we really did see a couple of names leading the charge across the board throughout the past week. dani: if you were to say forget

everything you know and look at the odds of what we will get for a cut, you would say small caps are off to the races, we are pricing in nearly 100%. we also have the gift of cuts around the world but that is not benefiting small caps. expectations for trump administration are not benefiting small caps. perhaps it reflects the hesitancy at the end of the year and concern for the inflationary environment in 2025. lisa: this idea a lot of high expectations have been baked in. that is something we saw yesterday with the ecb cutting rates by 25 basis points. take a look. in the united states, all inflected higher after yesterday's punishing session. it was not terrible from the internals. in europe we saw the selloff gain steam after ecb president christine lagarde came out and did not give a sense she was going to acknowledge some of the deep pain. annmarie: she did give a not to

the fact that europe is in political paralysis. she thinks maybe in 2025 that paralysis will evaporate given the fact we will get a new french prime minister and potentially have elections in germany. many say she could have leaned more into it given on the horizon there are so many unknowns when it comes to trade policy and how difficult it will be for europe to deal with president-elect trump. lisa: suggesting a rate cuts would be the path forward even as they remove restrictive to the benchmark target. the euro getting versus the dollar even though the dollar has been ascendant. part of this has been this idea that if ecb president christine lagarde is not more dovish, that might give relief to a europe that has been flat on its back. dani: do some degree you want a euro flat on its back. it is maybe a preview from what we will get next week. the idea you cannot necessarily

go which way the bond market will be given the headline decision. we saw that from the fed last time around that they cut and yields move higher. in europe they cut and yields move higher. it is at a time when the bond market volatility is already very high. it might get higher in the u.s. with concerns around options and growing deficits. there are some innate crosscurrents and so many things moving the market that it seems like the one constant is choppiness. lisa: that is over to fed chair jay powell on wednesday when we might get choppiness on the heels of not just the rate decision but what the telegraph is for 2025. under surveillance this morning, unitedhealth group saying the suspect charged in the killing of executive brian thompson was not a member of its insurance plans, added luigi mangione's mother was not a member either, dispelling the idea the elected shooting was inspired by a grievance his personal experience of a juror, it starts to ask the question, how much

are we looking at something that speaks to an idiosyncratic moment in someone's psychological trajectory versus some sort of overarching bigger statement? annmarie: the new york times has a story that basically tracks the last few months of this alleged shooter's life and the downturn he went into. what you get is a picture of someone who travels to asia, friends and families cannot get into contact with him, severe mental decline, severe feelings of wanting to solve things with violence which is never the answer. it is not something that should be lionized. that is the kind of picture you get in this reporting, this is someone who is deeply disturbed. annmarie: going back to what the mid said, the fact he is not a client -- to what the nypd said, he is not a client of united health care, but the note he wrote makes mention it is the fifth largest corporation in america which would make of the largest health care organization

in america. this is what he wrote going into this tragic murder. lisa: that will proceed. in the meantime donald trump expressing support for the national longshoremen's association. the union preparing for a potential strike on january 15 over the use of semi automated cranes at port terminals. amh, we already saw this torpedo some of the operations on docs in the united states. a real about-face from somebody who could people cannot identify whether he is prolabor or pro-business. annmarie: he is clearly backing labor when he said this and says he studied automation and knows everything there is to know about it and he is basically saying it is not worth it if it is going to put the workers jobs at risk. the other thing we should note from donald trump and the incoming administration, he picked a very union friendly labor secretary and that has put a lot of republicans on edge. this is the donald trump that is a populist.

it is a different kind of republican than people would be thinking when they think about how he is going to communicate with unions. you can see that from his cabinet pick and his meeting yesterday. dani: it is a different generation of gop. part of the thing i find interesting is when these negotiations were first going on, when it would spied in steam talking -- when it was bidens steam talking there was an idea that the ila had so much leverage because they were dealing with the most prounion president in history. that is not what is happening. instead you're getting another administration, you're getting from saying i support union members. it seems like the leverage is back in their hand which may be for the employers was a miscalculation to not come to an agreement sooner and kick the can down the road. lisa: if you're trying to come up with some cohesive overarching strategy join the club. china is one of them.

they have been trying to proactively move ahead of president-elect trump moving into office, china signaling more public borrowing and spending in 2025, the announcement after two day meeting of the centrally comic work conference in beijing. top officials making a lift in consumption and stimulating overall domestic demand their top priority for the second time in at least a decade. i want to stick with china. leland miller of china beige book will be joining us and he writes the economy is still weak but not catastrophically so and thus beijing's focus is not boosting the economy. they go stimulus will come if trump's tariffs come. leland joins us now. do you disagree with some of the euphoria we have seen in certain martins -- in certain markets embracing the idea of more chinese stimulus? leland: of course.

there is something different between stimulus that is supposed to juice short-term asset markets and long-term stimulus that is meant to restructure the economy, restructure the macroeconomy. what we have been seeing last september and october was stimulus meant to juice the stock market, they wanted to get investor sentiment up. if there is a play in the stock market and the government says they will backstop you go in. if you're talking about longer-term stimulus, something that is going to fundamentally improve the structure of the economy, you have to see what they are doing. there has been a lot of talk but not a lot of action. there is a promise they will pivot to consumption. everyone said they will pivot to consumption, obviously consumption will be much better. they have said this many times before. they got it in and done little programs. the question is not a one-off voucher here or there, but something that will restructure the economy itself to be more

depended on domestic demand. they have never done that before and most of that is against what xi jinping is trying to get at with his economic programs. call us skeptical. lisa: you believe it is totally an internal focus at a time we talk about plans being built in mexico, increased sales to south america, the vehicles being built from chinese companies in europe to sell it to that region. how much is that internally focused? leland: that is because that is the export models. you build your plants in mexico or vietnam. how do we get around other tariffs. you tread ship through these third-party destinations. it depends what domestic means. what you're trying to do is triple down on a manufacturing and export model. the problem is china has the largest surplus in history, the largest trade surplus in history , the model going into 2024 and

2025 has been we are going to take our export strong and double down and our imports are extremely weak, we will talk about doing things about them but we will not do anything. you have enormous political friction even if there was not president trump coming in and threatening tariffs. countries around the world are looking at this and saying you're flooding us with commodities, with eb's, it is becoming a major political issue across the world, not just in u.s. china relations. dani: how different could it look if it is a transactional relationship with trump, something not brought across the board tariffs. i ask this in the context -- three days ago cattle announce that with stellantis they are building an ev battery factory in spain. this is something that it planned to be in michigan but the democratic administration shut it down because of security concerns. this is the kind of thing trump wants, come into the u.s., build

here, and we will give you exemptions. could we see in 2025 this type of deal happening in the u.s.? leland: president trump has said that if you are willing to come here and build we will bring you in, you'll probably get a tax cut. there will be incentives for bringing all kinds of foreign production back home. the question is whether there is a national security threat that prohibits that from happening. there is a lot of talk of chinese eb's being produced in the united states. the issue is -- the biden administration just came out with something showing the degree to which the cybersecurity threat to have beijing producing these cars in the united states. not everything is an economic matter. if you are a company willing to come to the united states and produce you will be welcome but there will be big exceptions and especially exceptions when it comes to china. annmarie: 24 hours prior we

heard donald trump xi jinping to the inauguration, china saying they will not go but they will send a top representative. everyone could've guessed the outcome. what you make of the tone this in ministration will take dealing with china? leland: we have been dealing with this issue for the last couple days because everyone is baffled. does no one remember the first term? president trump had a friendly relationship with xi jinping while he was leveling a tariff war on china. there are two sides to this. you can be very friendly and terms of how you are talking about the other leaders and yet be very aggressive when it comes to economic policy. the biggest mistake wall street has been making as they have been looking at a few personnel picks where they've been looking at a tweet or two and saying this must be the president moving away from tariffs, this is a question will not be focused on all of the things he has been saying he will do for the last two years.

that is ludicrous. this will be a lot more of what the president-elect has been saying. he will do what he is saying and this should be the expectation, not thinking a treasury pick will push them in another direction from where he wants to go. annmarie: there is a treasury pick on one side and then marco rubio on the others, all three who have called for decoupling. do you think that is the china donald trump will be leading into? leland: i don't think the economic platform the administration is necessarily been crafted get. you certainly have people with different views. there are people that think you need to have a comprehensive economic security strategy with china which means tariffs but also technology restrictions and investment restrictions and supply chain resiliency, defense base rebuilding. there are other people more focused on tariffs. this is the most important

thing, we have to get the trade deficit under control. i am not sure this has all been squared away. the president will listen to the back and forth and make his plans based on what he likes at the time. the mistake is to think tariffs are not part of that program. lisa: leland miller of china beige book, thank you for your insights. let's get insights into what is going on in europe. here is your bloomberg brief with uehara hack us. yahaira: the economy contracted for the second straight month. gdp fell .1%. the economy only growing in one of the last four months since the labour party took our. the office of national statistic ported to continued weakness in consumer facing sectors including pubs, restaurants, retailers, manufacturing and construction output also declined. meanwhile big tech's embrace of donald trump continues. amazon donated $1 million to

trump's inaugural fund and company founder jeff bezos plans to meet with trump next week. amazon is also streaming the inauguration as an in-kind donation worth another million dollars. this comes days after meta also donated $1 million. consumers are still going big at cosco with the retail reporting better-than-expected earnings. membership rose at the retailer which is known for selling items in bulk and a better value. it's more than 7% rise in comparative sales while online sales also grew. executive said furniture has fueled e-commerce sales since the holiday season. lisa: i want to bring you some breaking news. we have been waiting for this all morning. emmanuel macron naming a new prime minister in france. his name is bayrou, he has been the head of education, minister of justice. he is a moderate and we will

bring you more as we know it. next, placing bets for the new year. >> the alec for 2025 is two halves. the first half there is a risk to a curve flattening or and rates remaining elevated. lisa: that is next. this is "bloomberg surveillance. " ♪

where ya headed? susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research. ya know, that's backed by j.p. morgan's leading strategists like us.

when you want to invest with more confidence... the answer is j.p. morgan wealth management we invent them, we design them, we build them. and one day, we have to let them soar. ♪ i'm always coming home ♪ lisa: coming into what could be the first week of losses in about a month, we are seeing a bit of a bounce this morning as stocks try to apply out from underneath that led by big tech. s&p futures up one third of 1%. under surveillance this morning, placing bets for the new year. >> the outlook of 2025 is two halves, the first there is a risk to a curve plattner and rates remaining elevated.

next year we expect trump policies to start to weigh on growth. they will keep the fed cautious. lisa: u.s. treasury market volatility slumping to multiyear lows as investors increase bets on a december rate cut. 2025 policy uncertainty creating diverging outlooks. morgan's daily writing steeper treasury curves now does not come with us a negative kerry in 2025 so it will be even more palatable. andrew joins us now. welcome to the show. how much are you watching the yield curve, some of these lack of volatility types of moves to understand whether we could see a revival in some of the mortgage market, and some of the originations as well as some of the transactions there? andrew: it is something a lot of people are looking at. we expect the fed to cut on wednesday. a lot of people are saying wire mortgage rates lower, wire

mortgage rates still close to 7% when the fed has been cutting rates and that is because the yield curve has been steepening over the course of the year and it is something i expect to continue in 2025. we think about the diversions between what the fed is doing and larger fiscal deficits and how the bond market will digest that, it will require more term premium so investors should be compensated for going out the yield curve. that does not mean there is not value in bonds, just means the value will come from the short end of the curve and there will be value there. dani: what difference will it make in terms of how much steeper the trade has to run if you get a cutting cycle that is cut short next year? andrew: when you look at what the bond market is pricing in, they're pricing in a cut next week and only two cuts for 2024. if you do not get those cuts ultimately will have flatter curves. i think you will get a fed that ends up cutting more than the market is pricing in.

when you look at the dot plot. we will get a new dot plot next week but we have eight members expecting more than four cuts next year. you have six projecting four cuts from the dot plot. you only have five members above that median. that is something important to look at going into next week. is there a change in that dot plot, there might be a hawkish tilt. the skew it is more likely we get closer to the fed projection then two cuts. when you think about the fed they historically do not end at neutral. a lot of people are talking about where neutral is but i think the fed is more than likely to go from a restrictive stance on policy to a stimulative one in the coming year. dani: as to solving the conundrum of why we have had cuts and yields move higher, there a lot of reasons, deficits one of them. another thesis has centered on the idea of bond market volatility, because there is more volatility in the bond market, that requires a higher

premium. i wonder what you make of that heading into 2025 when some of the whipsaw action, some of the narrative shift, it does not have any signs of ending. andrew: that is a great point. one of the things that is kept volatility and the bond market high over the last couple years has been in patient. there is -- has been inflation. when there is uncertainty you should be paid an additional premium in the bond market. i expect inflation to subside and the volatility to subside as well. we are still working off post-pandemic distortions, but i think those distortions are lessening month by month and they will lessen in the coming year. with that there will be less volatility in the bond market and maybe we will take out some of that volatility premium in the coming year investors should have been compensated for it last two years. annmarie: i know you think we

will get more cuts next year but how difficult will that be when we see the policy proposals of the trump administration which is tax cuts and more spending on the border. there will be fiscal stimulus in the economy. andrew: there will be a lot of fiscal stimulus in this economy. it is easier to cut rates for the fed when you are above neutral. we do not know where it is until after it is passed. we are in the easy part of monetary policy where the fed is not walking around in the dark trying to feel their way around neutral. it gets much tougher as we get in the back half of the year. as you mentioned on the fiscal side there are large deficits. there is a lot of campaign rhetoric that might not come to fruition. earlier you were talking about the small majority in the house. i think it will make some of the policies much tougher when there is only a three house seat majority when you look at some of the members that are leaving. i do not think trump's wish list and republicans wish list will

go through as planned. with that is going to come deficits that are not as high as feared. you have seen the bond market rally a little bit since trump was elected and that is a big part of it. lisa: at this point you are bullish on the prospects of bonds. why you think this will effect long end securities including most mortgages as well as the short end which is where everyone seems to be placing their bets? andrew: i am bullish on bonds and on taking credit risks because i think when you look at what happened this year -- we have had interest rates backup from the three-year point on the curve and out. there is more value in the bond market that says yields are higher today despite inflation cutting down, despite the fed cutting three times and likely four by the end of the week. we look at where he real yields are they are still extremely attractive. we are not advocating staying in treasuries.

when we look at what credit spreads have come in, but ultimately if you are a bond investor and you have this decelerating economy but still a strong economy, that is not abided -- that is not a bad environment to take credit risks. you can get a 7% yield on a high-yield bond or under a 6% yield on a mortgage-backed security. with a closer attractive places to park your money, especially when you are rolling your t-bills you will be getting into the three handle yields early next year. you think about where inflation is, if inflation is low 2% that is still unattractive real yield and that is something people should be moving out that interest rate curve, moving out the risk factor. lisa: thank you so much for being with us. real yields of 2% on the u.s. 10 year yield. coming up next, jared woodward of bank of america. jason thomas of carlisle, and former new york president -- former new york fed president

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>> on the equity markets i see some froth, i am nervous. >> i would expect markets to broaden out largely because the earnings differentials are likely to moderate. >> you want to be positioned in parts of the economy that are growing and also have a high share of domestic revenues. >> consumer resilience is not waning so they have some question. hi, middle, low. >> the markets are confused about the data.

>> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. lisa: welcome back. stocks looking to take back some of the weeks losses. friday the 13th. possibly the last significant week of the year as we head towards the fed meeting. equity markets looking to post gains as we do face the first down week in the past month led by the tech stocks. this is been something we've seen considerably over the past weeks. nasdaq 100 up .6%. in the bond space yields creeping higher after rising yesterday. this highlights the uncertainty heading into next week, given the fact we have a federal reserve expecting to cut by 25 basis points. it is the reaction in markets to the signaling that will matter most. next week that fed meeting there will be a lot of heavy lifting by jay powell. dani: we know 25 is coming, that

has already been priced in. the euphoria is 130 cuts globally in this market. are we going to get a hawkish cut where he signals him and the dots going forward there'll will be some sort of pause, maybe not a pause, maybe another recalibration to understand where inflation is going. yields have moved higher on the expectation something like that would happen. is that where the bias is you can get another cut as you have in the past and yields keep moving higher? annmarie: every analyst has said there is the green light for the fed to cut in december but the issue becomes 2025. everyone seems more focused on the dot plot. how are they going to start to think about the political economy changing because of the policies ushered in with the brand-new administration? lisa: how do you think they will do the dot plot? just put a dartboard up? dani: bill dudley's column came

out that says they can only incorporate tax cuts because the rest are unknown. i would argue why even look at the dots? if the dots are not going to incorporate the biggest policy proposals of tariffs and immigration, what is the use? here is the base case heading into next week. retail sales coming out as well as personal income and spending. the big event is on wednesday when we get the fed decision as well as the jay powell fed rate press conference after that decision. a real question about how long the consumer can keep powering the united states exceptionalism. we did get retail earnings already. a mixed picture and that stands out. dani: a mixed picture but the ones doing well are doing really well. costco a 7% increase in u.s. same-store sales. you could argue something is not right, more people are spinning at cosco.

we were speaking to holly o'neill at bank of america and she said that shift down is happening but spending is higher. it is just people trying to keep the cushion in their savings account, trading a little bit, but the consumer is still spending. annmarie: one thing i picked up from the costco ceo is people are buying what they need, not what they want. people are basic buying this year. lisa: toilet paper once again. coming up, jared woodward of bank of america. jason thomas of carlyle group on the m&a outlook for 2025 and 80 report and former new york fed president bill dudley on chair powell's balancing act and the dot plot during a second trump term. we begin with stocks higher boosted by tech, signaling a positive end to an otherwise potentially down week ahead of the final fed rate decision of this year. jared woodward of bank of america seeing room to run in 2025, writing we favor equities

given upside potential for broader earnings growth, higher productivity, and deregulation in the u.s. prioritize cyclicals with exposure to enduring themes like defense, tech come industrials come and energy. jared joins us. happy holidays. we are launching that today. i want to start with this idea of broadening out at the time when the last couple of weeks we've seen a stalling and that kind of activity. what makes you think we will restart and go back to that idea of all of the stocks outside the magnificent seven outperforming? jared: history is on our side. if you look at the sweep of the u.s. equity market in the 20 century the average weight to the s&p 500 in real economy sectors like industrial materials and energy, those parts of the economy offered 25% or more of the s&p 500. that was the norm. to date there much smaller.

consumer discretionary and the growth stocks -- our view is as the policy environment shifts, particularly in the united states, as the higher growth potential as well makes the value of those real economy sectors rise. investors should be positioned for moderation at the sector level because we think there is potential from deregulation, from a earnings broadening out across the economy and for higher productivity, particularly in the united states continuing the trend of higher productivity that started some years ago. lisa: do yields have the potential to stymie this? question marks around the deficit, around how much stickiness there is in inflation. how dependent is this theory on yields staying where they are or going lower? jared: as asset allocators we

think long-term fixed income, especially government bonds and investment-grade corporate bonds may not be as attractive in the coming years as they have in the last few years. we have had this thesis on 60/40 for a number of years that basically played out quite well if you look at the different asset allocation approaches in the market familiar and unfamiliar. having big allocations to long-duration fixed income has been a losing move. if you look across the treasury curve many parts of the market are underwater from recent years. i'm not worried about a rapid rise in bond yields hurting the equity market. i think we may see stick your inflation and stick your bond yields in the years to come in a way that makes it more attractive to be in credit and in short duration parts of the equity market investing in companies that have real profit and real cash flows that they can deploy to shareholders

rather than waiting for companies that might not be tangible profits until far into the future. dani: you're describing a much more active approach to the bond market. we have had people say everyone is an index are now. the way people are exposed to bonds are through indices. how unprepared are investors for what you are describing with 60/40 target dating funds and by the market strategies are not going to work as well? jared: this is an extremely important point. we look at benchmarks and with -- and they are more in balance than they have ever been. the s&p 500 is comprised of growth stocks. the benchmark and other bond benchmarks are weighted something like 70% towards long-duration assets, towards assets that benefit from deflation. a more balanced approach would

be more helpful in the future. it has already been of great benefit in the last several years as investors who can wait in a more balanced way across asset classes capture different risk factors, not just one big inflationary or progrowth stop type of sector and achieve better returns and better risk-adjusted returns. that is the call for 2025. dani: we were speaking with chris verrone of strategas who pointed out that volatility is low in the bond market, the equity market, but where it is not is the fx market and that is particular vulnerable to fiscal policy going forward. how worried are you about a broader contagion from currency markets? jared: if we fast-forward five or 10 years we can look at one data point for the future that would be valuable to help us allocate across assets, it would be the level of the u.s. dollar. on a real trade-weighted basis the u.s. dollar is the highest since 1985, it is too strong, it

prevents american exports from being competitive on the global market and prevents consumers in places like europe and china from benefiting from the wealth they produce. a rebalancing in the global economy, a slightly weaker dollar, slightly stronger currency elsewhere could create conditions for incredible potential growth. alternatively, if policymakers cannot find a way towards greater balance in the global economy in flows of goods and capital the dollar remains as strong as it is, it creates conditions for a very unpleasant bubble in which there is no alternative to u.s. tech and u.s. treasuries for all the capital around the world. what happens with the dollar and whether we can avoid currency devaluation in the years to come is one of the most important questions to answer in the market today. annmarie: how would policies means a weaker dollar when the once being discussed by the trump transition call for a

higher dollar when you think of things like tariffs? jared: there is a lot of debate on tariffs. i think economic history gives a much different picture than the consensus today. our colleagues suggest that even if you take a standard view on how tariffs might affect the economy, even in that case it is a one-time shock rather than a persistent affect on the market. any affect could prove to be small. i think there's a lot of potential for managing trade relationships, managing flows of capital that many countries have done for a long time. the perspective of some of these western policymakers, including the u.s. as we are trying to get back to a level playing field when it comes to managing exports come industrial policy, and trade relationships, bringing things to a level playing field that until now have been one sided. if that is true it may be the effect of these policies are

much less inflationary than a lot of the consensus has believed so far. annmarie: you believe we will see a mar-a-lago accord over the next four years? jared: i do not have any's possession -- i do not have any special insight though i think there's a lot of potential for leaders in the world to find a new path with bigger picture relationships to take advantage of some of the potential. in europe and china, policymakers know that overproducing goods or exports is not going to be a solution and they have been doing it for a while and it is not working. america knows that running massive deficits and increasing debt to fund unbalanced consumption is not a workable path either. it is clear there is some potential for a broad negotiated settlement. the open question is whether we have the light -- the right leaders for the job now and in

the future. lisa: you did make this point where you said if you could see one data point to set asset allocation into 2030 it would be the level of the u.s. dollar. can you give us a sense of how the asset allocation would change if it were stronger if it were week? jared: let's say just dxy, getting down to 90 or 80, a global rebalancing in goods and capital. i think that unlocks potential across the market. value traps in the market today could suddenly become live options for investors. tech sectors and growth stocks become much less attractive compared to value. real assets could perform well. if there is no real policy leadership on the global stage where there is not a path to some kind of success in you see continued excessive dollar strength, dxy at 120, the thesis

is there is no alternative to the u.s. market and the dominance of growth markets would be expected to continue. the danger is that is how most investors are already allocated today. that is the positioning. i think that could set up unpleasant overvaluation that could create a lot of fragility and even volatility in the market at a generational level. it is an extremely important policy moment given how extreme positioning and evaluation is becoming. markets are exposed to what happened in these big picture policy debates in the years to come. lisa: garrett watered, we look forward to speaking to you -- jared woodard, look forward to speaking to you before that. we appreciate your time and happy holidays. here is your bloomberg brief. yahaira: french president

emmanuel macron has named francoise bayrou to be the latest prime minister. it is a long-standing centrist ally. he will take over from michel barnier after coalitions united to topple the government. the prime minister bullock to avoid a government shutdown and pick up the pieces of a budget plan. meanwhile donald trump met with leaders of the international longshoremen's association yesterday. it is social media post he expressed his support for the union and criticized automation, saying "the amount of money saved is nowhere near the distress and harm it causes for the american workers." union members who walked up the job earlier this year may strike again in january. the fbi and the department of homeland security say they continue to investigate reports of mysterious drones flying over new jersey. they have been reported hovering over critical infrastructure including water reservoirs as

well as police departments and military installations. yesterday the white house downplayed concerns, saying they appear to be legal operated aircrafts and the fbi and ths have yet to corroborate the sightings. that is your bloomberg brief. lisa: we are drones. a little concerning. -- weird drones. a little concerning. annmarie: not far from where we are sitting right now. dani: no more conspiracy theories, please. people are like now aliens. we don't need it. lisa: i was thinking some sort of for an actor but let's go to aliens. let's not. up next, a new tariff warning. >> he wants to use tariffs as a major troxel in bringing people to the negotiating table. that would -- lisa: that is coming up next.

this is "bloomberg surveillance." ♪

where ya headed? susan: where am i headed? am i just gonna take what the markets gives me? no. i can do some research. ya know, that's backed by j.p. morgan's leading strategists like us.

when you want to invest with more confidence... the answer is j.p. morgan wealth management lisa: aliens? really? is that where people's minds go? dani: it has been a weird gear. lisa: meanwhile people are looking at tariffs and looking at markets that have not been responding too much to them. it has been a strange year and there has been this elevation of valuations getting people nervous as well as aliens. under surveillance, a new tariff warning. >> liability to be ready day one to implement -- my ability to be ready to implement president trump -- he wants to use tariffs

as a major cudgel in bringing people to the negotiating table and don't be a real ticket to bringing foreign direct investment coming into the united states. lisa: donald trump's proposed tariffs leading officials in canada way export taxes, a key commodity shipped into the u.s.. sources say and the move is seen as a last resort by the canadian government but tariffs are said to drive up costs for the u.s. consumers. joining us is bloomberg's mike sheppard. thank you for being with us. how much have we heard some rumblings of what the tit-for-tat and the retaliatory tariffs would look like from some of the other countries the u.s. might be going after? mike: they have not gone into nearly as much detail as what we have heard from canada. earlier this week we heard canadian prime minister justin trudeau address a business group in halifax and warning them retaliatory tariffs, the initial

response to any imposed by the u.s. would be immediately on the table, now we are getting a sense they would go a few steps further, that includes export controls and taxes on exports and this would hit key products into the u.s. we are talking about oil, about uranium. these are all critical inputs. the u.s. imports 4 million barrels of oil per day from canada and that would have an immediate effect, especially in the midwest and mountain states where a lot of the fuel is refined and sold. likewise potash is a key input for fertilizer. that would have a big effect. it would not be great for canada either and true does own patriots are not all on board with that. politicians in western canadian provinces are cold to the idea of trump imposing tariffs on canadian goods. the response, including export taxes, would be much more

severe. to your question, in conversations with officials from other countries we are not getting to the granular level of detail. they are much more in wait and see mode. while they see it as an opening shot in negotiations, they do not want to show their cards too early. annmarie: it sounds like if canada were to lead into this idea the trump administration would offer carveouts for commodities, with a not? lisa: that is one a lot of absurd -- mike: that is what a lot of observers are saying. one of the ways they could impact -- they could minimize the impact on u.s. consumers and businesses would be to exempt oil and more finished goods like automobiles and auto parts. it is early and if they really wanted to have an impact and send a message to canada about what trump wants, this is not

about economics, this is about the border. trump is using the threat of tariffs to extract policy concessions when it comes to border enforcement. he is waving this threat against canada and even more so against mexico where he is concerned the flow of undocumented migrants into this country is causing problems here and he wants our neighbors to do more and he is using tariffs to try to get them to do that. annmarie: justin trudeau is planning a major announcement because of that. are trump negotiating tools working? mike: may be in a way. that isn't one way to look at it. he has gotten both of those countries attention. the new mexican president claudia sheinbaum has tried to take some steps of her own. she has reached out to donald trump just as justin trudeau has. you remember to go -- you remember justin trudeau flew to

mar-a-lago for a dinner with donald trump. she has also called trump and tried to take steps she can follow through on when it comes to the border and drug enforcement there. trump will be asking for more. when it comes to negotiation, the usmca deal between the u.s., canada, and mexico that trump forged during his first term is up for review in 2026. this is also a warning shot ahead of that conversation with the neighbors. dani: is it really that unusual that canada has a game plan for worst-case scenarios? could we not expect most countries confronted with tariffs from the u.s. that everybody has some sort of idea of what they might do in a tit-for-tat trade war? mike: in conversations with officials from other major u.s. trading partners one thing that struck me was the detailed level

of knowledge they had about their trade flows, including with the u.s.. they have a pretty good idea of where to hit the u.s. and how to make it hurt. when you look at u.s. trade the last time we got into it with tariffs in canada, they went right after things that were distinctly american. kentucky bourbon, heinz ketchup. these are the kinds of things that send a message not only economically but politically to get the u.s. government and administrations attention. lisa: always wonderful to hear from you. bloomberg's michael sheppard. we did get an update on what happened with that vote on the hill. what is the latest? annmarie: he got the endorsement. he is ready to go in terms of getting the gavel when it comes to the very powerful house financial services committee. if you read reporting on what went on behind closed doors it

was a fight between three or four individuals and he was able to get it on the second round. lisa: it would be the first chair of the house financial services committee and quite a wild who has run a bank. annmarie: he is also the individual that has been the most outspoken about regulation and when it comes to the crypto industry, really warming to the crypto industry. those individuals are very happy to see him get that chair. lisa: coming up, we will be talking about some of the increased activity expected in the banking sphere. jason thomas of carlyle group on the m&a outlook for 2025 at a time some people of argued this has to do with rate cuts, maybe not. we will discuss. this is bloomberg. ♪

lisa: ending the week with a positive note after what could be the first week of losses in about a month. two hours from the cash open. let's get your morning movers with manus cranny. manus: when ai sales rocket up by 65%, that is a powerful signal for broadcom. when you tell the market the addressable market will be 60 million to 90 million dollars come that is when you grasp the magnitude of what ai chip is all about. the rest of the business isn't as powerful. the semi conductors, regular semiconductors are up 10%. these guys have a margin of 66%

and have hiked the dividend by 11%. what is not to love about broadband this morning? if you are part of the paypal mafia and cabinet come you can look at the stock. upgrade the stock to outperform, $107. this is the largest digital wallet outside of china. 220 million active users on this wallet. it is about monetizing and squeezing that. rh, or restoration hardware as i used to know it, this is the worst housing market in decades, and yet they squeeze out 24% uplift in demand in november, 30% uplift in demand so far this month. this is the personification of the wealth effect in the u.s. they are raising the guidance. this is a gutsy call. we won't be impacted by tariffs from china. that is what they're saying to the market. also, get ready for something pretty spectacular. i don't think that i'm the

typical customer. you walk in, and it is, are you ready to buy the whole room, sir? not the sofa. lisa: the wall street journal reporting president-elect trump's transition team is looking for ways to shrink or consolidate bank regulators, potentially including abolishing the fdic. annmarie: it is not feasible and you get congress on board. you have a bunch of officials trying to find ways, and part of the trump transition team alongside doge, to cut fat in spending and asking if trump could abolish the fdic, which gives you pause. not only do you need congressional support but the banking world is giddy about the trump world using regulations. what happens if you were to get rid of the fdic? it is considered sacrosanct. could you see a run on banks?

this could be a bridge too far and i'm not sure congress would go along with it. lisa: it makes for headlines to get the euphoria to continue. amazon donates $1 million to the trump inaugural fund after we heard from meta. a spokesperson says they will live three -- they will livestream the inauguration as an end-kind donation. he has a range of business with federal contracts and everyone is eyeing elon musk and say can i be your first or second buddy? can my stock be up 70% since the election? this is getting a seat at the table. pazo's is not just giving the money via amazon, he will be meeting with trump. trump often listens to the person who is left that she was last in the room with him. not just bezos. zuckerberg dined with trump after the election. these are people trying to get

their era. for people like amazon, companies, it's important. there was a lot of back-and-forth in the first trump administration and he called the u.s. postal service their delivery boy and launched an investigation into the prices they were doing. bezos and amazon probably want to avoid that this time around. lisa: we're hearing response from other countries. canada eyeing the use of export taxes on the u.s. including oil and uranium as retaliation against the trump expected tariffs. sources tell us that the expert levees would be a last resort. retaliatory tariffs on american goods are likely to come first. annmarie, everyone is trying to position ahead of what could be a tumultuous 2025. lisa: you see trump almost renegotiating usmca with partners mexico and canada, but canada is the largest exporter of oil into the united states. if they were to go ahead, the trump transition team in terms

of massive walls going up with canada, you have to think that there will be massive carveouts as well. lisa: people lining up for the banking side. let's turn to m&a. investors are expecting a bang up 2025 thanks to president-elect policy proposals and pick ferguson. "when coupled with the resolution of election-related uncertainty and perspective policy changes, the fall in finance costs should lead to a dramatic pickup in m&a activity in 2025." jason thomas of carlisle joins us from our d.c. studio. thank you for being with us. happy holidays. we are rolling that out. i went to get your take on the mna boom that everyone is saying will be in 2025. how much is because of policy changes and how much is because of an interest-rate backdrop that looks potentially very different? jason: you know, it's hard to

ascribe exact proportions, but i think that the important thing about the rate outlook is that for the last two years there has been very strong expectations among market participants that rates would be much lower in 12 months, 18 months. that led a lot of sales processes to be postponed. the idea of, let's not sale today -- not sell today, wait when rates will be lower, prospective buyers will have a much easier time obtaining finance at cheaper rates and will be able to pay more for this asset. now, i think we are finally at a point where there is much more symmetry in terms of the expectation for rates. not only today do you have a fed that is certainly going to cut next week, and how many more cuts are coming? i think that there is strong signals when you look at inflation that policy is closer to neutral than restrictive. maybe two more cuts in 2025, but

that could easily be offset by significant spread widening over that period. if you look at credit spreads today, we are talking about the tightest level since may of 2007. i think rather than the idea of postponing sales processes or postponing acquisitions for better financing costs in the future, there is a sense that acquirers and sellers need to act now while conditions are as favorable as they are. lisa: this speaks to not only rates going lower or higher, but stability being the most important ingredient to understanding why someone would pull the trigger now vs wait longer to wait a transaction. if rates stabilize at this level, do some of the acquirees have to accept lower prices than when they were evaluated in pre-pandemic times when the base understanding of rates was vastly lower? jason: i think we are going to

go through a very interesting period of price discovery. it's worth noting that if you look at effective yields today, they are only 50 basis points above where they were in march of 2022 before the fed first hiked rates. the spread compression has been quite dramatic, and has offset much of the increase in base rates. i think, just appreciating the scale of spread compression is important for these pricing discussions. secondly, i think most of the transaction volumes are going to involve more seasoned assets. assets entered into 2018-2019, pre-pandemic. i think it will be a lot of broad sectors of the economy. where i think there are these genuine questions about where valuations are ultimately going to settle out in this world a very different finance costs relative to 2021 expectations is

in sectors like technology, where you had an extraordina rily high subscriptions for software, medical-based technology. it could be a two-year period before people feel comfortable having a sense of where valuations are going to stabilize. for much of the rest of the economy, i think that the volume growth is going to be surprising people. if you scale m&a activity relative to the size of the economy, or relative to the price level, we are still down about 42% from long-term averages. this really could be very meaningful growth from 2024 levels. annmarie: deal activity comes back dani: -- dani: deal activity comes back, but does the ipo market? this has been challenging for gps. the idea of unless you have a big cap tech company that does something with ai it won't be

treated well in this public market. do the animal spirits, m&a coming back reinvigorate the idea of being able to exit some down cap companies into public markets? jason: i do. when you look at m&a, when you look at the ipo market, the reopening of the ipo market, of course the underwriters have to set a target to try to generate a pop for the ipo investors. historically 8% to 20% trade up in the first week. the 2021 ipos performed so poorly in secondary market trading over the subsequent two years, i think peaked a trough down an average of about 70% -- peak to trough, down an average of about 70%. they had to give progressively lower guidance for sellers and sponsors. i think that changed your medically. we have completed two ipos over

the second half of 2024, and the price guidance and price targets were acceptable to us, i think acceptable to sponsors, sufficient return, but also sufficiently low to build this strong book of ipo investors. i think when you look at what predicts ipo activity, it is the secondary market trading returns of prior ipos as more ipos perform well you will have more interest from ipo investors. dani: i assume this has to be music to investors into private equity funds' ears. lps have been clamoring for the past year saying that you need to exit investors to get cash back to us. do think that changes the behavior of investors and lps having gone through this period of having their cash frozen, not getting it back? will it have some reticence and how they and where they invest? jason: what i think has been so

interesting over the past year is the way that investors increase their allocations to credit with good reason. at the end of 2023, broadly syndicated loans were yielding 10% to 11% and private credit 13%. that is well in excess of institutional capital pools target equity returns generally 9%. you are getting higher returns but less risk because you are investing in the securities that set at the top of the capital structure. this is largely what led to the supply demand imbalance. although this money in credit seeking opportunities where m&a volumes have not been's is -- have not been sufficient to generate that capital. that is the origin of the spread compression. that is effectively what has unlocked, in my view, this m&a boom. because of the way a reduced finance costs. because of the way that the

spread compression has offset come in many cases, the increase in base rates. it is interesting it is investors allocations decisions moving towards credit that planted the seeds for this looming boom in m&a activity in 2025. annmarie: what would be your advice about andrew ferguson to individuals looking at getting involved in the m&a space in 2025? jason: you know, in washington, i think that there is going to be some significant scrutiny of mega caps tech acquisitions broadly shared in the policy community. some of the acquisitions may have competition. instead of having standalone companies like instagram or youtube, the consolidation perhaps with something that, again, if you have the chance to rethink there may have been more scrutiny applied to those deals. i think there is going to be a change in policy attitude, so

there is a continuation of the scrutiny of mega caps tech. for the rest of the economy, you are going to see merger guidelines, attitudes towards business combinations, you know, that are dramatically shifted relative to the past two years. i think in many cases it was deep skepticism about virtually any business combination that was proposed or considered. lisa: how much could you see this m&a boom be, given that everyone is putting out the proclamations of how big 2025 could end up? jason: i think when you scale dollar volume of m&a activity relative to gdp or relative to the price level, relative to market capitalization, getting back to longer-term averages would be consistent with a 50-75% increase.

i think that much of this is a real option of waiting. the sense that we will have better financing conditions in 12 months, there is no sense in acting now. that has been played out. the time to act is now. the potential for higher rates in 12 months is something that i think every would-b acquirer and seller has to seriously contemplate today. lisa: thank you for your time. let's get an update on stories elsewhere. here is your bloomberg brief. yahaira: elon musk and the sec are back at it. elon musk posted on x that the agency has reopened its probe into neuralink, but didn't say exactly what it is investigating. the letter said the sec is preparing to take action against elon musk regarding the timing and disclosure of his purchase of twitter stock before acquiring the company in 2022. according to the letter come the agency gave elon musk a 48 hour

deadline to accept a settlement over the probe or face enforcement action. the sec declined to comment. consumers are going big at cosco with the retailer reporting better than expected earnings. membership rose at the retailer known for selling in bulk at a better volume. the stock, a 7% rise while online sales grew. on the earnings call, executive said that furniture has fueled e-commerce sales this holiday season. youtube tv customers are in for a surprise. starting january 13, new and existing customers will be charged $82.99 per month with companies citing the rising cost of content for the change. when youtube tv launched in 2017 they charged $35 a month.from there it got incrementally higher. in 2019 it reached $50. last year it was hike to $72.99 per month. at this point coming basil get cable. [laughter] lisa: thank you.

they say inflation is dead. next, the trump strategy. >> we don't know the timing or substance of policy changes. we don't guess, speculate, or assume. lisa: that is next. this is bloomberg. ♪

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lisa: heading to wednesday's fed meeting, under it surveillance the trunk strategy. >> in the near term the election will have no effect on our policy decision. we don't know the timing and substance of policy changes. therefore, we don't know what the effects on the economy would be. specifically whether and to what extent the policies would matter for price development. we don't guess, speculate, or assume. lisa: we do, though.

fed chair jay powell holding back from making predictions by the economic impacts of trump's policies, emphasizing the need for more clarity. the former new york fed president bill dudley writing his new column that just dropped across bloomberg, the fed can and must at times make assumptions about what politicians will do. when the trump administration's tariff and deportation policies come into focus, that outlook may become less rosy. bill dudley i'm pleased to say joins us now. thank you for being with us. let's talk about how a fed comes up with a dot plot looking into 2025 without making some assumptions about what the policy backdrop is going to look like. bill: i think they are going to make assumptions. i think they will assume the 2017 tax cuts get extended. i think what was said at the last press conference, don't guess, speculate, or assume, is counter addictive to what they did in 2016 when they did include the fiscal policies that they thought were going to be enacted by the first trump and

ministrations.that was in the forecast. i think that they have to assume that when it is big, when it is likely, when it is clear what it is going to be, and when it is priced into financial markets. and i think that's true for the extension of the tax cuts. it is not true for tariffs or immigration policy, very uncertain about what those policies will be at this point. dani: do you think that is why it is important to look at tax cuts rather than policies that could have contradictory effects on growth? bill: the problem with terraces you don't know how big they are or how long they will last -- tariffs is you don't how big they are or how long they will last. deportations, you don't know the magnitude or speed of what the program will be. if you don't know what is going to be, it's hard to put it into the forecast in terms of its likely effects. i think that the tax cut assumption will be in there, but nothing else. annmarie: when it comes to tariffs, the 2018 talked about in the first iteration they saw

tariffs as a one-hit threat. you agree with that assessment? do you think that that would hold today for this fomc? bill: i don't think they're making assumptions on tariffs because they don't know what the administration is going to do. the difference is, the tariffs that were done in the first trump administration relatively small. the total tariff on imports went from 1.5% on imports to 3% of imports during the first trump administration. we are talking about much bigger numbers. 10%, 20%, 60% against china. it may be much greater. we aren't sure. is this a threat or will turn out in terms of substance? annmarie: we essentially have -- dani: we essentially have the incorporation of tax cuts and missing and on two key pillars, immigration and tariffs. i know that this is a sacrilegious question so you'll have to forgive me, but are the dots even useful this time around? bill: the problem with the dots

is that you will have an unusually rosy forecast because it doesn't include some of the more controversial economic policies that could change the outlook with respect to growth, inflation, and productivity. higher tariffs, deportation is going to be disruptive to the economy and push inflation up, growth down, and that is not going to be in the forecast. lisa: what is your base case for how they will telegraph some pause or adjustment to the process of rate cuts in 2025? bill: i think that it will be done in a couple of different ways. number one, the numbr of rate cuts that they show in 2025 ago down from last time. last time in september they had 425-basis point rate cuts. this time it will be two or three. i think it will be all talk about how inflation is a little bit sticky. the economy is doing really well. you'll probably see upper revisions of the fed's estimates of the neutral rate. i think all of those things together will make it pretty

clear that january is probably going to be a pause. that is what is priced into markets. markets are sure about december being a cut and pretty certain about january being a pause. lisa: where would your dot be? what would you be looking for for next year and what is the bigger concern, inflation or weakness? bill: the place i would probably divert from the consensus of the committee is on r-star. the median estimate is 2.9%. the estimate shows the fund rate going to 2.9%, not in 2025 but in 2026-2027. i would have a higher r-star at 3.5% or higher. i wouldn't have as much key motive easing of monetary policies that the fed will have. lisa: that seems to be where the markets are at. former new york fed president bill dudley, thanks for being with us. that will be the key question going forward. how much do you see a readjustment of what this new

reality of neutral rate really looks like for this federal reserve. dani: how many tools does the fed have a they are in this position when they are given policy and the dots. the market will look at that and say, i think this is more rosy than it will be because we know you aren't incorporating certain things. it limits the ability of the fed to get policy via communication. if the market is willing to say, we have a different idea of where things are going. annmarie: this morning, talking about a hawkish cut. it is going to be a cut but very dicey and difficult to understand what they do going forward for 20 25. the bill dudley's point, that may mean a pause in january. lisa: hawkish cut is still saying the neutral rate is 3%, 3.25%, might be hawkish for a market that has moved well ahead of that. coming up, john stoltzfus of oppenheimer with the biggest bullish call out there so far for 2020 five. mandeep singh of bloomberg intelligence. rick rieder of black rock as we

look to yield space with yield higher across the board. this is bloomberg. ♪

>> we have to look or the risk of some shock effect coming in that distorts the euphoria we have been contending with. >> i am not running away from

u.s. stocks that the ideas that you get a broader market. >> into next year we could have shocks in trade or fiscal policy. >> over time those rates bite in the fed will have to capitulate. >> it is important to recognize that the range of outcomes will be wider. >> this is bloomberg surveillance -- surveillance with jonathan ferro, lisa abramowicz and annmarie hordern. lisa: welcome back as futures climb led by big tech looking ahead to a big wheeze -- big week. help us with the big fed rate decision capping a year of incredible uncertainty, futures marginally higher across the board led by big tech. i was listening to that intro with all of these people talking about the potential for shock and it is almost as if people want to sound if they are bearish. annmarie: this goes to

christopher harvey's note that says that bearish is fascinating. there are scheibel's, some p.m. -- shy bulls out there. lisa: that is the reason why it is a race to see who can upgrade their forecast the most. we will be speaking to the biggest bull on the street, questioning about whether they are susceptible to a surprise from the fed on wednesday. dani: bank of america said the reason why risk assets have done well in 2024 despite all of the uncertain the is that central banks started their cutting cycle. this has been the key for risk assets going higher and presumably going higher in 2025. if we get something that sounds like this cutting cycle will get cut short, that will disrupt the bulls. lisa: we have seen 480 million

dollars flow into u.s. equities so far and it is on track to be an absolute record with the u.s. dominating all flows across the board. i love the chris harvey note. basically driven by this wish to be contrary in. you understand why at a time where there is an overwhelming consensus. annmarie: it is uncomfortable. everyone is on one side of the boat and is something wrong? research note after research note everyone is saying no, you have to be a part of the rally. dani: i am seeing more qualifications than you usually do. it is like we will do really really well in 2025 or maybe 2026 will have some disruption, maybe we will do well in the first half and then pull back a bit. the worst-case scenario is 2000 points less than that. there is a lot of qualifying and making sure if things go wrong you have your bases covered. lisa: there will be a bubble in 2029.

coming up, john as the rally takes a slight -- a slight breather but he has the boldest call. claudia sahm and do not miss this, rick rieder of blackrock looking ahead to the finer fed -- the final fed decision. we begin with stocks higher and investors parsing mixed inflation and labor data. john of oppenheimer, the most bullish on the street writing " fundamentals suggest further upside for equities based on current stateside monetary policy. the resilience, -- the resilience in economic growth and job creation evidence in recent years, we need to initiate a price target for the s&p 500 by the year end of 2025 by. 7100" he joins us now. you are the biggest ball last year. john: i love the drumroll and

that is great. we really think about setting the target seriously, although we think the most important part is what we expect the direction of the markets to be. and in this particular case it looks like the fundamentals are intact. you have a business friendly administration coming into the white house as well as at least on a marginal basis, a congress that is essentially more business friendly and the outlook, it would seem. and then you also have the bond market which applies discipline. the fed i think relies a lot on the bond market to make some of it statements related to inflation, when it is stickier, and the judgment it might place. usually it is a 10 year that provides the signal. lisa: i am looking at the upside

and it points to a 16% upside. you were the biggest ball last year. and it was not bullish enough and raises the question why stop at 16%, why don't we double? john: the old thing in the days of the 1960's and the 1970's they used to call it the mega bulls. we are not looking for a perfect world or anything unrealistic based on history of the last millennium. we would have to say that we are looking for a fed that remains sensitive in terms of the economy related to both sides of the general mandate and the quality of the economy with inflation in check. and yet not pushing unemployment to levels that would be concerning.

and then business and the consumers and if you see slowing or some guidance that is rather cautious, all in all, it looks good to us. we think it is a continuation of what we have seen but not necessarily at the pace of picking up another 20%. we would be glad to ratchet this higher if the s&p would close that 7100, you know? at least consider. dani: fair enough. i wonder how clients deal about this. -- feel about this. have you gotten pushback saying i'm worried that everyone is bullish? john: they hear from me that one thing that concerns me is that so many bears have capitulated and are on side -- on my side of the boat. i was part of this business for

41 years so i came in during the second term of paul, which was a scenario with much higher interest rates and inflation and all of the drama that developed through that. i bring a certain amount of context. it does not mean we are always right, but our clients that i have been with with oppenheimer heard me speak that i have a lot of access to our viewpoints and publications and client events. people are remarkably calm although they are very realistic, well diversified and they know why they own it and they have right sized expectations of how the expectations will perform as the economy works things out in the fed works the economy towards a 2% target. dani: as we head into another year that is a good one for equities does leadership in 2025 look different than 2024?

john: leadership, expect a continuation of the broadening but very much in some ways the market has been a python, digesting things. you watch the digestive process you have a broadening and a narrowing, so we have seen since the lows of october 2023, the market has had periods where it broadens and it -- and you see the mag seven share the stage with other sectors. you get the other 10 sectors and you will see that perform to some extent. mostly nine of them. energy has not been a great participant.

it is growth versus value other than style and market, cyclicals annmarie: when it comes to your research you say you can climb the proverbial -- the proverbial wall of worry. what are your concerns? john: some of them are what we have heard from guests on your show. the question is will the administration use tariffs as a blunt instrument or negotiating tool where the u.s. is a -- is the buyer of choice. if we were given a wall street definition we are buyers in

size. that in itself offers a negotiation strength for the administration to remove some unfairness within the global competitive landscape, as well as look to bring some businesses back that are important for national defense and health care. but, i do not think we are looking at a picture that is as dramatic as many people expect. the geopolitical risk remains significant. sociological concerns within the united states, as we just saw related to the killing of head of a large insurance company. all of that has a sentimental value -- a sentiment of value that is important to consider. as to the economy, the business and consumer are doing what they

need to do. the consumer at a slower pace but showing to be a consumer that is more sophisticated than ever for -- ever before, mostly because of the financial media. bloomberg educates people as do some of its competitors. and that makes a difference. lisa: thank you. everyone appreciates that. the first concern was tariffs, and i know you love the potential for ai. you think ai can trump some of trump's policies. john: i think when it comes to ai. i think the value of ai is and what it does for the other 96 years other than technology, to increase efficiencies and operations and for the consumer to increase efficiencies as they deal with services and products, and all of that to us looks

contributory to a more economic strength and a better opportunity in terms of new types of labor and we are in the early innings. we are believers in ai. all of the moonshot staff will see how it works out. on a day-to-day basis, management is suitably place to grow their company and then up at their shareholders, customers and employees are investing in ai. the -- it is progress and watershed quality progress parallel to where the automobile was after henry ford mechanize the assembly line and brought down the prize and increased the quality broadly, it change the way people live. lisa: thank you for being with us and happy holidays. we will see you on the other side. let us get you an update on the stories elsewhere.

yahaira: hello. the trump transition team to drop a car crash reporting requirement are is vehicles according to reuters which would particularly benefit tesla which has reported more than 1500 crashes to federal safety regulators under the program. the move could hinder the government's ability to investigate and regulate the safety of vehicles with automated driving systems. donald trump's team could be looking to make banking regulation a thing of the past. "the wall street journal" saying that the apartment of government officially -- efficiency has talked about limiting agencies or -- or eliminating them like the fdic. they hope they will ease regulation on capital requirements or consumer regulations. but any proposal would need congressional approval. the container store is preparing to file for chapter 11 bankruptcy following mounting

losses and escalating liquidity issues. the company had been in talks with lenders to provide capital for growth, but they have pivoted to focus on restructuring. the container store operates 103 stores and ultimately $230 million in long-term debt. lisa: thank you. container store, i do not understand it. you do, but i kind of felt like if you wanted to organize your stuff, why buy more stuff? dani: you know you did back-to-school shopping and you had cool notebooks. the container store is the adult version of that. like pretty things to put in the house like other things. annmarie: marie condo your closets. lisa: i do not try to buy new plastic things. annmarie: you are too logical. lisa: up next the morning calls plus mandeep singh on anticipated ai demand coming up next.

broadcom shares are up almost 17%. this is bloomberg. ♪

lisa: welcome back. berg surveillance with stocks ahead of open futures up point 4%. across-the-board pretty slow action, although the euro is bouncing after yesterday's tell multiple after the ecb rate decision. 10-year yields higher again crossing 4.34% threshold. time for the morning calls. barclays upgrading norwegian cruise line to overweight -- to overrate. next up jp morgan downgrading toll brothers to neutral expecting a less supportive backdrop for the homebuilder. and keybank upgrading salesforce to overweight saying it is

optimistic about the company's adi platform. let us take with ai as it is a transformative force similar to the creation of the automobile like we were just hearing about. broadcom is rallying after a boom in demand for ai chips. they are saying that ai products will gain 65% to the first quarter of 2025. joining us is mandeep singh of bloomberg intelligence who in plot -- who gives us great insights. what did broadcom get right given that its numbers did not outperform to such a big degree. mandeep: the numbers were not but what they gave us was the runway with their existing customers. the three hyper scalers with google, metal and bite -- meta and bytedance, that market feeds to 20 million and they said it will expand just from these

hyper scalers. that is huge. two of these customers are also customers of nvidia. when they say exposure is 45% they are counting google and meta as customers. the fact that broadcom is so enthusiastic about the ramp-up goes to show that if google is building up one million clusters of their cpu's, they are using broadcom and probably moving away from nvidia but they could use both and that is a real takeaway. lisa: how much is broadcom an alternative, parallel or being used by the likes about the -- apple to diversify the sources so they are not dependent on one company that keeps jacking up the prices. mandeep: think of the biggest ai cluster is about 100,000 gpu's. broadcom said that we would have

a one million gpu costs -- cluster over the next few years. whether it is gpu's or any other custom chip, broadcom is betting the latter because it benefits their business. gpu is more standardized but broadcom is every -- he is saying ever hyper scaler will build their own custom chip so you do not need to buy everything from nvidia, you can customize the workload and buy the chip from broadcom and then customize the way you want. that is a big bet that they are making. the 60 or $90 billion is not just -- is just the hyper scalars. they are saying they will spend 60 to $90 billion in the next three years. dani: some of the other chip components, you have seen apple try to get -- to bring that away things like the bluetooth on the wi-fi, what does that do cross

-- what does that do? mandeep: that is always a risk. right now apple is the largest customer. that is on the iphone side. apple is ramping up on the data center side and they called out two new potential customers, apple and openai were two of them. openai could make their own chips and that is why apple is not that big of a threat because they will ramp up the data center side. the custom chip is a real opportunity and broadcom's position to the best. annmarie: earlier there were concerns about too much revenue coming from china and are they able to diversify more? mandeep: no one knows how they are able to get -- no one knows how they will be impacted. bytedance was one of those hyper scalers. clearly that is a risk that is also for nvidia as well.

annmarie: bytedance, they are literally working with bytedance who owns tiktok and that might be banned in the united states. is broadcom the most vulnerable when it comes to these semi conductors? mandeep: given beyond 12 to $5 million right now and you could say some exposure. they have sizable exposure but i think that apple has the toughest challenge and it comes to china. we might think that broadcom is exposed but i think there are a number of other players expose. dani: what are the other risks that people want to talk about? the idea that they are exposed to hyper scalers and they might slow down their spending. it is interesting to hear the ceo talk about that. do you think they will take bets on the concerns about spending petering out? mandeep: they said capex could grow up 35 to 34%.

broadcom said that they would exceed that growth in the hyper scalers. if anything that they are telling us is that broadcom will grow faster than nvidia at this point given that nvidia has age. the fact that he is so confident that they will grow faster just tells you how much visibility they have in terms of capex. annmarie: how much has the world of ai shifted in 2024 when it comes to who the leaders are and who they are set up to be in 2025 and a time where you see broadcom making inroads. you see nvidia slowing down and

mandeep: then some players not put in the performance. mandeep:look at the shift. right now we are in the second or third inning when it comes to genai. lisa: mandeep singh of bloomberg intelligence. just noting that a lot of people looks at artificial intelligence to interpret fed speak and i got this from deutsche bank. we asked the ai to two -- the ai tool to rate the degree of hawkishness and they came out that ai finds no signal beneath the surface consistent with an imminent 50 basis point cut. this is a new thing is fed speak reader in chatgpt. dani: like how great are these insights. we all could've listen to lagarde but it saves you the time of not having to do that. but i want something unique and something you could not have just gotten taking signals from her brooch or something.

annmarie: her brooch sometime signals whether or not she is going to be double sure hawkish and i am not sure ai can glean into that. lisa: you can add that. on her models for ai, claudia sahm with real insights on what to look for in the fed meeting as well as the dots and rick rieder of blackrock as we see you -- yields inflecting higher. how much does the signal the path of least resistance is higher and not lower or does it signal it is in the end of the year. this is bloomberg. ♪

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lisa: the futures are looking rosy on friday the 13th after a week of losses. we are seeing the gains escalate. nasdaq futures up almost .9%. one hour away from the cash open and let us get some specific morning movers. manus: a confidence in the visibility and the visibility, that is what broadcom is telling the market. not only do they see the ai products up 65% but the guidance

third 2025 in addressable market somewhere between 60 to $90 billion. for every product they deliver they are chasing into a growth market. margins of 66%. this is a monster announcement from broadcom to the extent that bank of america shifted gears up to 250 from 215. a snapshot of paypal. they are $250 million. the biggest wallet outside of china sits within the paypal family. how do you monetize that and upgrade that from a 4% growth rate -- growth rate to mid to high single digits and that is what they want to know from the investor day. i will leave you with a snapshot of our age -- rh despite the worst housing markets and decades. december up 30% month today. not only that but how many ceos

are there, who say it does not matter what the tariffs are, we are diversified and removed ourselves and we have a supply chain in fact. -- intact. this is a gutsy guidance. lisa: have a wonderful weekend. the markets digesting mixed data ahead of the final fed deity -- that meeting of the year. bloomberg economics expecting that the cpi and ppi data will open the door for more easing. claudia sahm of new century advisors wrote "the markets greatly overestimated the number of fed cuts this year, but not the fed. they were more cautious in the second half of 2023. caution will be a fed buzz word for 2025, but it is evergreen for the fed." claudia joins us and thank you for being with us, happy holidays. i want to start with the idea of what does caution mean at a time where for some people it means even pause for the first half of

2025? claudia: a big piece of the caution is that they are to their core data-driven in their monetary policy. and we know after having watched the data with them, the data is messy. that is part of, they want to see the good news when we see the disinflation like we did, a lot in the second half of next year -- of last year, but they do not want to extrapolate the good news. we round out the inflation data for this year in an ok place. we saw numbers that were ok, particularly after we brought in the producer price index, but they are not great. that is where the fed would have done a percentage point of cuts if they go forward with the 20 -- with the basis points of next week. then they will thank take a break, see how the data goes and see if the good news continues,

and then keep going. they are not in a hurry. and that is a stance that has largely served them well. lisa: do you think it was a mistake in retrospect or there will be a reversal of jay powell talking about how they would not welcome any further weakening in the labor market? claudia: i think this is still a dual mandate fed. that makes the fed very hard to read. if you look at their projections in a year ago, they were close on the cuts that they did this year and they did more than expected. and yet, the forecast and other pieces were having some big misses. there is not a simple reaction function. the fed's job, that is a very tricky job and so, in addition to being cautious, they are known to and have been and we have seen it this year nimble in

decision-making and they have shifted often with the labor market and concerns with inflation. that is a thing that we will absolutely see going forward because inflation has made a lot of progress in the labor market has cooled off. that keeps coming back as a theme. dani: the shifts might happen more because we will not get the details of it. what does it mean for the summary of economic projections. how useful is it for a guide of 2025 if they do not assume. claudia: the summary of economic predictions will be of limited use. but it is unlikely that that officials will build in the gases on fiscal policy meaning that it is more a read of after the inflation data we had and there has been a lot of discussion about disinflation coming out and is their problem space?

they will pencil in a little bit less of interest rate cuts which will be reflective of the data that we have on hand. and it is not going to be telling us what they think about fiscal policy. honestly, the 2025 forecast and obviously get away with it. it is going to take time and we will get a blast of words about fiscal policy and initial reactions. by the time it feeds into the economy, that will take a while. like especially the out years of the projections that we get, it is really not worth the electronic paper they are printed on. annmarie: we heard from bill dudley who has an opinion piece and joined us who said that powell might have to walk back the assertion that we do not assume especially when it comes to tax policy. what -- is that an avenue with loose language in the press conference?

claudia: i do not think he has to walk it back. there is a real logic for the fed to not get in the business to put in the fiscal policy. if you read the forecast and the details that they have put together at the same time that trump was getting ready to start his first term, they had -- the staff forecast had very loose assumptions about what kind of placeholders of fiscal policy and in a way that this time because the tax cuts were extending and we do not know what was added on in the tariffs are a real wildcard with what the u.s. and what other countries do. it is like it would be the fed creating noise. if they are putting in these assumptions and guesswork and front running and administration that has not gotten to work. i disagree. i think he has to put his foot down and say do not play it in. i do not wanted in the forecast.

lisa: thank you so much for being with us, happy holidays and have a wonderful weekend. rick rieder looking forward to the fed outlook writing "several fees cute -- several future factors appear constant although there is a number of uncertainties that cloud the inflation network and complicate the rate cut recalibration's. rick joins us now and thank you for being here. it has been too long. i want to start with the question of how much fed policy drives what you find attractive right now at a time where the progress with disinflation seems to be at least calming down? rick: i am trying to give an answer that is just more clear than what i wrote there. part of what of -- part of what that was was the economy is in good shape. we will have retail sales and a good number.

the consumer is in good shape and capex and broadcom this morning, the investment going into ai. so you have an economy operating at a good level. inflation is if anything, bending up. and so much of the progress. now what does the fed do? i agree with my colleagues, they have to go in december. we have been adamant about get the funds 24 because it is too restrictive and you are hurting lower income people. now you a say let's see where we are and interpret the data. it was a great question about policy is going to change. what does district -- what does strategic decoupling look like and what is the stimulus that you put into the economy through deregulation. the range of outcome for gdp is pretty significant. i think the base case economy

will be in good shape. the u.s. economy, different paradigm globally. lisa: raises the question what is the bigger risk. it sounds like credit risk is not the biggest concern because if things are so great then credit looks good. at the same time spreads are tight and you have to worry that maybe people are overestimating what the effect of the policies could be. how do you sort of judge those two issues? rick: i did a presentation where he showed for the first time in decades, the risk-free rate is more volatile than the risky rate and the spread sector is a remarkable point in time. we build any asset whether it is equity, what is the risk-free that is your constant and then you build variables on top of it. the variables are more stable than the risk-free rate particularly out the yield curve. i think the front -- front end

is pretty well pinned. the fed sits there for a little while and could you soften up a little bit but i think you are pricing in a fed that will sit here for a little bit and trying get another couple of cuts. the long end of the curve has some of the term agreement at the back end which is not enough. i think you have some volatility out in the longer end in an economy that is in good shape. dani: what would it look like to have term premium and how far away are we from fair value? rick: it is a tough question and something that is interesting. people say we should put a curve steepen or and technicals in the curve but the curve is good. the net flow in the system including where you take pensions and life insurance, so where would you buy it? my view is that there is not a big tactical let us put on the steepener trade. i feel like i can clip a ton of income into the belly of the curve, and we have asked wayne

to five or 6.5 -- we have bink that have 6.25 or 6.5. if you have a portfolio you can own long to rated assets, equities or the long end of the yield curve with not a lot of term premium and the equity market is throwing off 18% roe growth of book value. and technology innovation framework which is incredible. when i pick my tools in the markets, long end interest rates is not something i say let's stop at that one. dani: a lot of people have remained in cash like interests -- instruments and those types of funds even though there have been calls for reinvestment risk and you will get out of cash and you will miss the move and yields. that has not played out.

does 2025 change that? rick: agree and somewhat disagree and that look at the high-yield market. the high-yield market will bear out 8.5 -- bang out eight point five. spread markets have done well. if you are staying in the front end, the long end of the yield curve -- the market, the one to three year has been good. listen, one of the things pretty historic about today is that at some point the economy will moderate and we are a few months from that. you will see a dynamic in the back half of the year that you see, particularly if you have tariffs, you get global slowdown. the real rate of return is one where you can build a portfolio and get a six or 6.5 yield. let's say inflation goes up and we are running 2.5 to three, that is attractive. the idea that does cash deserve

a seat at the table? yes. but if i could lock in the real rates, every time you had real rates in history that reach the sort of level. if you took a one to three year time horizon the returns are spectacular because at some point the fed has to get the real rate down because they cannot create enough velocity. annmarie: you talked about the range of gdp expectations and we could see with changing policy. and then you mentioned inflation. how concerned -- how concerned are you that this will have sticky inflation that is per se -- persuasive -- pervasive and last. rick: when we look at where is inflation trending your pretty constant. we have core pce at 2.5 or 2.6. cpi is a little bit higher because of component dynamics. we think it is constant. my sense is that you will not see dramatic tariffs like some of the things that get thrown

out in terms of negotiation. you have to assume at least that the trend is a bit more inflation into your calculus. the one thing that i think is extraordinary, and i think people do not spend enough time thinking through. if you think about the investment in ai and productivity enhancement that will come through we talk about job replacement and the ability for so many functions that can be reduced, can really have inflation that ticks up, and incredible spend on data center and cooling and tariffs and a bit more in terms of inflation and a one time adjustment in price and you will start to see it move the other way pretty soon. the timing of that is hard, is it nine months or two years from now? annmarie: what gives you the conviction that it will not be blanket tariffs? rick: one, the president ran under this dynamic of we will

bring inflation down. there are couple of things that happen when you put pervasive global tariffs on, they are hard to implement and there is a tangible growth dynamic on the others. once you create that sort of abrogation of global trade you get a need -- a near-term slowdown that could be significant. we look at industrial production and how that could come off. you will get some bilateral tariffs and negotiations depending on who negotiates where. china is a place where you will get more significant tariffs. but, the impact of doing that globally really has an impact on the u.s.. i did analysis with mexico and canada and cars. you think about the incredible traffic back and forth in vehicles and trucking, petroleum refined fuels like, if you cut that off of any significant magnitude, the impact it has on growth could be significant. lisa: you will be sticking with

us. rick rieder of blackrock. let us get you an update on stories elsewhere. here is the bloomberg brief. yahaira: russia launched a massive airstrike in ukraine and kyiv describes it as one of the largest attacks on their power structure. moscow fired almost 200 -- 2000 drones. 81 missiles were intercepted. according to the atomic energy agency it forced ukraine to reduce output at five of the nine nuclear reactors. president-elect donald trump met with the leaders of the international longshoremen's association and in a social media post he expressed support and criticized automation saying "the amount of money saved is nowhere near the distress, hurt and harm it causes for american workers. union members might strike again in january. foxbusiness reporting that sam

altman is donating $1 million donald trump's inaugural fund. he said in a statement " president donald trump will lead us into the age of ai." it will come as a personal donation as opposed to from his company. that follows $1 million donations from mark zuckerberg and jeff bezos. lisa: thank you. up next setting you up for the week ahead. ♪

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are everywhere you turn. we're letting curiosity light the way. asking smart questions about opportunities like advances in healthcare. and how these innovations will create a healthier world tomorrow. better questions. better outcomes. lisa: counting down to the opening bell and here is the trading diary through the next week. monday, s&p global pmi.

tuesday, retail sales and then wednesday, a federal rate decision followed by a chair powell news conference. thursday, jobless claims and rate decisions for the bank of england in japan. friday, core pce and university of michigan sentiment. rick rieder was saying something that i found interesting about how you get income now from stocks more reliably potentially at the long end of the yield curve. does that destroy the idea of 60-40? rick: when you think about what it was when the long end of the yield curve was ballast in the portfolio was giving hedging potential and it worked for years when inflation was coming down in the 80's and 90's. today is different. if you say i own equities, what would i do with my equity portfolio? i believe equities is where you compound growth and particularly today. the ability to compound growth is extraordinary and a way to

stay in the equities. compound growth is a spectacular year and when you go to 2025 you are still throwing off 18% r.o.e.. and then i take my income and say real rates in fixed income and you stay in this one's a five-year part and i get a lot of income. i compound that incoming get the growth from equity. and what is my stopgap and hedge? equity volatility is incredibly low. your ability to manage a risk court -- risk portfolio using volatility allows you to create balance. today, you can create a lot of income and optimize where you are compounding growth. i say get income from equities, but you can get it from appreciation. i lot of dividends are slow growers. i am at the top part of the capital stack and i do not know, it feels ok to me. i think fixed income equities

are different. diversify and get as much yield as you can and then in equities one of the come -- what are the companies that will take you to the next level especially in a year like this. dani: does this feel like a permanent shift? this is different for asset allocation, the idea that you cannot have these bonds as a haven. is this year and now or a reconsideration that the entire industry needs to go through? rick: that is a great question. you cannot say never but, in the near term, one of the cool things about the industry is that there are so many tools to create precision in a portfolio. you think about the growth of etf, futures and derivatives, the regime shifts every year and we spent a ton of time trying to's and three what is the regime for the next year and what are the tools that you utilize. and there traditional interest

rate tool, and by the way if you want and think about the index i am getting a bunch of stuff and do i really need it, i have some long and tight spread assets and i can buy an etf now. i think now we are turning the corner and rates are coming down, there is a long end tlt and etf and i will get my duration that way and maybe i bring my beta down and portfolio through equities where we talk about options and other ways to reduce them. that we are in a new era where you can manager portfolio in such a sophisticated way because there are sony tools at your disposal. lisa: what is the yield level that you would find long end yield curve attractive again? rick: i don't know. life changes and it is not under no i do not want to give a level but that get stamped. but i think -- i do not think

you are there today. i think over the next couple months, that is a pretty good nonanswer like the first quote that i had. listen, we have to see. there will be a point in time where we see inflation and that productivity enhancement and automation that will come in and then we will start to buy some back end assets. it is more about the environmental condition than pick the number. like the fed and chair powell, i would like to see the data policy and see what the tariffs are. lisa: cheat sheet when it does not answer, it all depends on the data. he has absolute discipline student of the data. wonderful to see you and thank you for being with us. coming up on monday, do not miss this, steve sharon of federated hermes, kelce faro -- kelsey barrow of jp morgan and sarah hunt. plus a sound -- a showing of

jonathan fail -- jonathan ferro. thank you for being with us. this was bloomberg surveillance. ♪

matt: looking at gains like carmakers are up and broadcom is up and it is an exciting market. katie: sonali basak is off and bloomberg open interest starts right now. matt: the chips are up, semiconductor shares getting a boost from broadcom's bullish outlook on ai demand and it is not just ai excitement.