P&L: Tough Questioning in Tillerson Hearing is Bipartisan

that are being held in Washington today. We know that Rex Tillerson, former chief executive of Exxon Mobile attampt to be the next Secretary of State. Stephen Dennis, So anything stand out to you in the in the questioning or is it pretty much standard Democrats going after Rex Tillerson and his ties and his business experience in Russia and the Republicans UH supporting Rex Chillensen. Actually, I think it's

pretty bipartisan. The tough questioning senators like Marco Rubio are going after Tillerson very hard on his ties to Putin and also on Putin's record of having uh of his dissidents disappearing and getting murdered on the death of civilians and Aleppo, which Rubio charges the Russian the Russians with

perpetrating crimes against Aleppo civilians. And uh So, it's been very tough on Tillerson, I think, except for Tillerson has sort of said, sort of deflected everything and basically said that he needs to know more information and needs no classified information, which he won't have until he's confirmed, and then he'll give advice. Um So, I think Tillerson is basically hopes that he can get through on that sort of basis of just sort of trying to deflect as

much as he can. And uh and it's gonna be a real question now for people like Rubio, McCain and Lindsey Graham whether they're gonna ultimately vote for Tillerson if he loses though that that trio, he will not be there's a big chance he will not be confirmed. He needs to get some Democratic support. Um So, this might be the most interesting nominee as far as whether this nominee can get confirmed ultimately. Everybody expects that he will,

but you know, he's got to. He's got to make these Republicans hawks on Russia happy and there's certainly been more and more about Russia, and we're certainly going to hear a lot of from Trump about whether he has

ties to Russia. He keeps denying that on Twitter. You know, I expect he'll probably deny it, and with questions when questions are asked about the leaked report that came out yesterday, and also about his own personal finances, he still hasn't really detailed everything that he owns, and also how all of his loan I wonder if they'll ask about whether he will release his tax returns. I would I would expect something along those lines, and also how he had

will extricate himself from his business. And you know, he promised a press conference in December on this very topic until hasn't happened talking about that. Why is he holding a press conference now at the same time as a hearing for one of his cabinet nominees. Well, you know, I think now it's probably as good a time as any you know, I mean when he was going to have it, Uh, you know, you want to do it

in the middle of the week, get maximum attention. And you know to the extent that Tillerson is the one pick who may be in the most danger, along with possibly the Treasury Secretary pick Stephen manutian Um and maybe a few others. Uh, you might you might as well have your press conference, have the the big bully pulpit

um to try and bluster things away. Is there any evidence that any of the nominees feel that they are going to be unfairly treated as part of the hearings because this is not something that is brand new to Washington and many of the people, at least as far as the Senators are concerned. But for many of the nominees, this is really their first interaction with the way Washington works. Yeah. I mean, there are a couple of things that are different about this cabinet. You know that it's the richest

cabinet by far. You have billionaires in this cabinet. Just dealing with a paperwork when you're a billionaire is an order of magnitude different than if you're just you know, Joe Q citizen. So people like Wilbur Ross and Betty de Voss, who who are very wealthy and are in this cabinet, you know, their paperwork is taking a while. Um. But also these are people by and large who have never been in government before, so being in a hearing

is is a new experience. Now Rex Stillerson's testified before Congress before is ex ce Jeff Sessions, who was at his first very marathon hearing yesterday, is certainly experienced as a before the Judiciary Committee for Attorney General, right and and and so Sessions sort of kind of anticipated where the questions were going and kind of knew how to

dance around most of the questions. Uh, this will be an interesting thing to see whether Stephen Manuchian, the Treasury Secretary pick, when he has his hearing in the future, um, and some of these other picks who have not really been before Congress, that they're really going to be under the gun and the Democrats are really going to go after them because they want to show that the populist

Trump is not how Trump is governing. He's picking plutocrats in their eyes who don't really have the interests of working people at heart. And you know you're going to see them go. They're already going very hard after Mr Poster the well Elaine, I just want to mention Elaine. Elaine Chow, who's the nominee for Secretary Transportation, is the only Trump appointee who has previously worked at the cabinet level.

If you know, I wanted just to break in, I mean about the press conference that we're going to be watching. I wanted to understand kind of the process of how it usually goes down. I mean, how long should president elector or does a president elect usually speak for? And then how much time is usually allotted to questions. You know, I wouldn't be surprised to see this go on a little bit longer since there hasn't been a press conference in an unprecedented period of time since the election, and

there are frankly, so many questions out there. But it really depends on Trump, you know. He he can bluster at the beginning for a few minutes and then open it up to questions. Uh. Typically you get six eight ten questions at a at a scheduled press conference like this with the President Obama. Uh. Trump could go longer

than that or not. And the other thing is that the reporters, you know, keep in mind, these reporters have have not had access to Trump and large they might try to ask three and four part questions because there are so many unanswered questions. You know, he tweets uh, little details and and never really interacts with the press in a meaningful three or four part way. This is the first real opportunity beyond the few interviews that he's

done with UH, with sort of adversarial press course. So this is going to be very interesting to watch how he interacts, whether he tries to be marker garious or combative. And after yesterday UH and the tweets were seeing in all caps this morning decrying fake news and dismissing this report as total fiction, I expect he'll probably be very compative and very critical of the press for not treating him fairly. Stephen Dennis is our Bloomberg Senate reporter and

he's with us. You know, I was just looking at the schedule of hearing is You're gonna be kind of busy nine thirty tomorrow morning when Washington James maddis the nominee for Secretary of Defense. He'll be testifying before the were inveted. He'll be questioned by the Senate Armed Services Committee. Then you have Ben Carson. I believe he'll be before the Senate Committee on Banking, Housing and Urban Affairs. That's a ten am. Yeah. I think Mattis is probably a

slam dunk. He's a favorite of John McCain, who's no friend of Trump most days. Um. But you know, that could be interesting if Maddis Rebuke has a different position than Trump on Isis on torture, on a number of things. So that's something to watch for. You know, Ben Carson,

that could be a very entertaining hearing. He's a guy who previously said he doesn't have much experience in government and had there was a real question whether he wanted to even be an administration and so I think the Democrats are going to try and test whether he really has the knowledge to handle that that department. And uh, Wilbur Ross also he's up at ten am tomorrow as

well in Washington's before the Commerce, Science, and Transportation uh committee. Yeah, now Ross is sort of interesting, obviously well known on Wall Street billionaire. UM. I think the real question with him is how he's going to handle conflicts of interest um and that sort of thing. But you know that there's no real expectation that his his nominee is nomination

is going to be in trouble. And you know, part of the thinking I think is, you know, you don't really want to get a billionaire mad Yeah, well so, uh so that that'll be uh someone interesting for you know, people who watch Wall Street to see how he handles handles himself. But I think that will probably be pretty standard.

Fair Stephen, have you heard about Republican and frankly or Democratic senators getting together before these hearings and trying to come up with a game plan, because it does feel like there has been some I don't know conflict if

in turn to seeing conflicts certainly between some Republicans. Now absolutely, I think the Republicans and Democrats sort of treat these things by and large as teams, and they sort of dole out who's gonna ask which line of questioning, who's gonna you know, with the Jeff Sessions, who was going to defend him on X and who was going to

defend him on why? There there wasn't a whole lot of Republicans who really wanting to go after Jeff Sessions, and the Democrats you know, went after him a little bit, but they didn't go after him as hard as they potentially could have. You know, he's a he's a colleague, he's going to win confirmation. You've got to deal with him as Attorney General. So uh, he didn't really go that hard at the allegations of racism as they could have um in his past. And uh so that we're

going to see more of that today. I mean the unprecedented spectacle of Corey Booker going after UM Jeff Sessions, a fellow senator that's basically on heard of, and it could be something that sets up Corey Booker to potentially run help him run for president four years from now. Um. You know, he's one of the rising stars in the on the Democratic side, and they're looking at the party spaces looking for fighters right now, and they see him as one. I just want to mention that I mentioned

Wilbur Ross. He's not going to be uh at the hearing tomorrow. It'll be January. Stephen Dennis, thank you so much for joining us. Steven Dennis Blueberg, SENEC reporter. It is the big debate. It is the debate that is keeping up people at night and is keeping bond. King's going at each other with the numbers. I want to get a number from Mike materas So, Senior Vice president and co chair of Franklin Templeton's Fixed Income Policy Committee.

Mike thank you so much for joining us. Do you think that there is a certain threshold, a certain number for US ten year yields to climb above at which we can say goodbye to the thirty five year bond

bull market? Um? Well, is there a number? I don't know if there's specifically a number, but uh, we're of the opinion that we we could see yields move as high as three percent this year, probably more towards the end of the year, but that wouldn't necessarily mean that that the bull the bull bond market has has ended. I think that there are a lot of demographic trends globally that are in place that will keep UH global growth as well as inflation under control over the intermediate

to possibly even longer than that. That's a that's an important point. In other words, even if the if the yields on ten year treasuries to does climb, do climb above three percent, there still could be potentially a plateauing from there, in your view, I think, I think so. I think that uh there that higher interest rates at some point will will choke off economic growth and slow slow US the U S economy down as well as other economies, and with that UH not see inflation rise

and UM and UH interest rates rise as well. Mike, could you comment on municipal bonds because I was reading a story today about how corporate tax cuts could actually reduce demand for municipal bonds from banks and insurance companies because lower rates make municipals less attractive compared with taxable investments.

How does that work out? Well, I think it's more a matter of depending upon how the tax code ends up, but it will make UH corporate bonds and even treasuries more attractive, especially if you go with the Republican UH proposal, which I think is a sixteen and a half percent tax UH paid by individuals UM so, so I don't think it has an impact per se on municipal rates,

but it gives provides more competition for municipal bonds. Having said that, I think it's important to realize that a ten year double A municipal bond right now has a yield of about a hundred and fifteent higher than the ten year treasury, so it has a spread over treasuries to begin with. So I think that it will provide more competition, but not necessarily be apparel for the municipal

bond market. Mike, you know one question that I have given your prediction that ten year treasure yields will climb above three percent this year, I have to wonder what, I'm sorry, approach three not approach okay, approach three percent this year? What does that mean for corporate bonds. I know that we've seen the fastest pace of issuance of

investment grade bonds to start the year. UH and meanwhile, yields on junk bonds have climbed to the lowest in two thousand and fourteen, leaving a pretty all cushion of extra spread to sort of absorb that kind of increase. Yeah, that's sort of the quandary that fixed income investors are in right now. I think that with a lot of the proposals UH that of the Republicans and Trump administration, if if they're passed, I think it extends the business cycle,

which is good for for corporations. At the same time, though, a lot of the a lot of that positive news, and potentially I think it's important. Not necessarily it's not necessarily going to be passed, but a lot of it is already reflected in UH in yields on corporate investment grade corporate bonds as as well as high yield. So we are we're positive on credit, less positive on relative value. Right now we would in other words, what does that

mean in terms of a trade? Oh? Sure, So what it means is that, uh, given womans and most would say that we are in the latter stages of the business cycle. Fiscal policy that will be passed to the extent that it's past, it's passed later on this year will probably extend the business cycle. That's positive for corporate credit. That when that the prospects of a recession are further off.

At the same time, though, spreads have come in on investment ary corporate bonds probably about thirty thirty basis points over the last few months, and even more so on high yield, so they're spread to treasuries. The risk premium has shrunk. Should there be any disappointments where risk premiums rise on these on these sectors of the markets, we would look at look at that as an opportunity to buy because we feel the business cycle will be longer.

But current levels were just moderately we find corporate bonds and high you'll just moderately attractive, just moderately attractive for high you because I note that the inflows into et f s exchange traded funds, particularly for a high yield debt, added about a billion and a quarter. I was gonna say, a tremendous, tremendous influence a very and it's a very efficient way of getting exposure to the high yield market. I shares seven to ten year treasury bonding TF had

the biggest outflows. Is this an indication of what we can expect if indeed we get some kind of fiscal spending bill passed by the Congress. Well, typically it's interest rates are rising because business prospects are getting better, and that's good for corporate credit. And that's the reason why individuals are buying corporate bonds is there they feel comfortable

with the credit quality. And in that type of environment of rising treasury rates, corporate bond yields are going to rise, but not as much as treasury yields will rise, So it gives you some some protection to the downside. Mike, what's your greatest conviction call on the markets? Uh? This year? I mean, do you have any sort of contrarian bets that you're making on either a recovery or a big loss. Yeah,

I would say probably the more. In the In the near term first half of the year, I think that we could see a bit of a disappointment and growth given that interest rates have risen, that oil prices have risen, UH, the dollar has risen, and I think all of these are our headwinds to the US economy and the global econ We've had a global manufacturing rebound in the second half of this year and that probably will taper off in the first half of the neck of the of

of this year last year's rebound UH, and I think that we may see see a little bit of disappointment instead of I think in the near term treasury yields can can rise, probably from maybe upport around the two

and three quarter area. But I think that we could see a declining yields in the first half of the year based on growth disappointment, only then to see in the second half of the year are rebound as more as more of the fiscal policy UH is discussed and hopefully passed, which will have a positive effect on two thousand and eighteen growth. So look possibly lower yields in the first half of the year rather than higher yields. I think that's a contrary of you. I want to

thank you very much for spending time with us. Mike Matta Rosso is the senior vice president and co chair of Franklin Templeton's Fixed Income Policy Committee. Now let's turn our attention to an ongoing story which has to do with an unsubstantiated intelligence reports involving Russia and the President elect. And here to tell us more as Chris Strom, he is Justice Department reporter for Bloomberg News. Chris, what can you tell us about this report and is there any

veracity in it? Is it truthful at all? Well, this is a thirty five page report that is just full of multiple allegations that are unsubstantiated. However, some of them appear to be rooted in reality to a degree. For example, there's there's indications in the report that the that there have been UH questions about business dealings by UH by

Trump associates. Now we know from our reporting that the FBI has already been looking into UH possible corruption UH tied to Donald Trump's X campaign chief Paul Manafort over in Ukraine. Now, there are multiple, multiple allegations in these thirty five pages. They're also I just so, I just want to mention and having looked at the documents that you're talking about, there are multiple grammatical mistakes, there are multiple repetition, there's multiple repetition. Uh, it doesn't seem like

a coherent document. It just seems grammatical and substantive mistakes. Yeah, and it just seems it doesn't seem like a document that was prepared by any um, I guess, substantiated organization. Where does this come from? Well, the the belief at this point is that it came from a former m I six intelligent agents over in Great Britain and his intelligence team put it together. UM. We are still trying to verify exactly where the report came from and what

in it might actually have any sense of credibility. What we do know is that there was a a two or three page summary that was attached to the briefing that the intelligence agencies gave Donald Trump in President Obama last week, and we have not seen what is in that.

It's that very slim down version, and questions remain whether the intelligence agencies in that, in that very condensed version only presented information that seems to have uh, you know, some sense of credibility or some additional independent sources verifying what was in it. But certainly the document as a

whole contains all kinds of unsubsidiated allegations. Aside from this document, that we've heard that the Russia is suspected of hacking the Republican National Committee as well as the d n C, and that they're holding material that could potentially be damning for President elect Trump and that they could you know, use is basically a bargaining chip that they have some leverage when it comes to negotiations. Is there anything in this memo that was attached to Adassier given to us,

allegedly given to President elected Trump. Is there anything that sort of seems like the most possible thought er for UH leverage or or that the Russians could use to just sort of get President elect Trump to do something that perhaps uh might not be And there's nothing, there's nothing that I can say right now that that we have any indication that it is going to be something, uh, something that is verified incredible that could be used to

blackmail Donald Trump. UM. I think that there's concern now uh between among lawmakers in Congress that this needs to be looked at in in in detail to find out if there is anything. But it's also important to remember that that, you know, Trump has sent out tweets saying that this is fake news and that there's nothing. He saying that the Russians and the Russians have also But it's important to remember the Russians also denied hacking, as

you know, they denied hacking as well. And I think, you know, the intelligence agencies have pretty fortunately come out with you know, the uh, you know, back backing up the idea that that the Russian government was hacking the DNC and other political groups. Well, we're just going to

mention that. In one of Donald Trump's tweets earlier, he asked if these leaks, the leaks of this dossier or this document of he described dirt, meant that we are quote living in Nazi Germany, says he prepares to hold his first I mean this this memo, you know, it's I mean, it's it's it's a bomb that just went off last night, and we're all trying to's we're all kind of scrambling now to try and figure out what it means, what might be in it that has any

you know any any substance so far. Is there anything that sort of stood out to you? One thing? I can't say if there's anything that jumped out to me, Um, I I don't want to. I don't want to identify anything in particular that that you know that we don't have, that we don't have. You know that we haven't been able to independently verify your back up yet. That's fair enough. I respect that. Thank you so much for joining us.

Chris Strom, Justice Department reporter for Blueburg New speaking to us from Washington, d C. Talking about how markets are trying to find direction ahead of the Ahead of the press conference by President elected Trump, James Crombie, an editor of Boomer Briefs, has been talking with economists about their predictions regardless of what President elect Trump may say or

tweet today. James, must be a particularly difficult time to sort of nail down the top forecasters given the political uncertainty.

What struck out, what was stood out to you as sort of the most notable uh IDEA Well, we ranked the best forecast is in the fourth quarter for a variety of US indicators, and we talked to a lot of the top ranked forecasts, and what really stood out for us in terms of surprises were that one headline growth could be higher potentially, although not as high anywhere near as what what Trump suggested four percent when he

was campaigning. UM. But a lot of people were also saying that the you know, the Trump effect, that what one described as Trump flation may not be anywhere near as much as as what some people were expecting, and also not happen in the short term, so it could deliver at the end of next year. For example. UM. The other big thing unemployment, as you mentioned earlier, will four. We had one of our top forecast is suggesting that it could get to four point one percent by the

end of next year, which is very low. UM. And UM, you know that really implies that the Fed has to move more quickly than probably is priced into the market right now. The other thing inflation, UM two percent at some point this year. PC could hit two percent by mid year. UM. That's the Fed's key indicator. Again, that

means the FED may have to move. When we asked one of the forecast is what that means in terms of hikes next year, he said, if you held the gun to his head, he'd say more more four than two, which is surprising and it's certainly not priced in um. And the other thing that stood out fed transition. You know, will Trump replace the current line up with a lot

of hawks. Um, certainly policy will change in some way that can you imagine somebody actually holding a gun to somebody's head and saying, you know, come on, how many FED hikes next year? Anyway? Um? No, I hope not. James. Just want to get your thoughts on accelerated inflation because I was looking today and JM. Smucker talking about raising coffee prices six percent and another note, looking at the grains market specifically soybeans and wheat, and those prices are

trending higher. What is the outlook for inflation? Well, I think you know we're seeing it all over and not just in commodities. But um, you know, if there is this big fiscal push, then that will obviously have some inflationary impact. If there is a bad for bonds, good for stocks possibly. But markets are moving in strange ways as you as you as you probably watched the moment. Well,

I was just looking at the ten ure. For example, in the yield there is two point three eight percent a little bit of a sell off and in the third year two point nine seven and that's kind of hovering around that three percent level, which I believe. Jeffrey good Lack at the double line and Bill Gross at Jonas Uh they mentioned very specific levels I think to six and three saying the bond bull market is over. Yeah.

I mean, I'm curious, James, when you talked with some of these forecasters, was there more hemming and hiring more. I don't know what's going to happen. Then you've heard in the past. Um, I think all of them, you know, they've been doing this a long time. They see Trump as a lot of noise. In lots of cases, they've some of them have said that they've become a bit more nimble. They've made their models smaller and easier to

adjust because of the new political situation. Um. But they're you know, they're still forecasting, and they're still you know, they need to make calls. They need to see through that noise. And Dave, you know, just sort of to that point at people still need to make calls, but not necessarily right ahead of a Trump press conference. It seems like, you know, you spoke about how there isn't a lot of direction that people are kind of waiting.

I mean, do you have a sense from volumes or just sort of a certain activity of just how sort of how much traders are with bated breath right now waiting to get a sense of what direction we're going to head in. Well, just taking a quick look at the first half hour or so trading, I mean, it was pretty much in line with what we saw yesterday when you look at NYC and NAZAC listed stocks. So I mean there's a big mo just looking at a

big board. Volume is down right now, I touch, you know, not much and as much as anything, you know, it

becomes a matter of where we go from here. And I would just note since you're talking about inflation that you know, we got numbers out of Super Value grocery chain and their earnings came up well short of estimates and the stocks down eight percent, So you know, and that's an area, particularly when you talk about food, that you know there's a concern that you know that the grocery chains and everyone sort of alongal line may suffer

because prices are falling rather than rising. Within that piece of the inflation puzzle, one it doesn't necessarily get a lot of attention because if you think about cord inflation, it excludes food as well as energy drives or takes any kind of vehicle or really eats foods about volatility, PIM clearly, thanks very much. Dave Wilson, Bloomberg stocks Commas appreciate it. Just send Dave an email at d Wilson at Bloomberg dot net and sign up for his daily

free email newsletter. Our thanks alson James Crumbie. He is the editor of Bloomberg Briefs. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio. It