Surveillance: Forecasts Have to Be Nimble With Trump's Unknowns

Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and of course, on the Bloomberg Chrispharron joins us head of Technical analysis at Fatiguous Research Partners. Chris, great to speak with, great to be here. Give us first the historical perspective here. We have watched the market since, watched the market especially closely here since the presidential election. How does it fit into history, the kind of rally that we've seen. Well, actually,

it's not that extraordinary. If you look at four key returns thus far, they're about average for what would expect this time of year. So I would be hard pressed to call the market terribly extended at this point by our work. It just doesn't look at when you look at at correlations, what do you see at this point, Well, what we see is dispersion. We see correlations among stocks in the SMP right now the lowest they've been in

about ten years. So your stock picking matters. Now. What we've learned historically is when correlations are moving lower, it's often consistent with a credit environment that is supportive. It's also consistent typically with the market that's going up, not a market that's going down. So lower correlations to us reflect normalcy. A line stood out to be in most recent note, you said the election has been the first macro event and eighteen months where correlations have actually declined.

What's it? What's it play there? Yeah, Well, if we look at the last eighteen months of price history, we had a number of macro events. We had the kind of devaluation in August. We saw correlation spike when oil was at twenty six. We saw a correlation spike around Brexit. The same thing that tells us that investors were not distinguishing among stocks. They were not discriminating among stocks, they

were treating them as an asset class. Uh. It seems like today, UH, investors are treating individual names on their own individual merit. UH. That is a healthier framework. It's often one that is consistent with lower volatility as well, so we welcome the change. I also think it's good news for active here in the act of verse passive debate, given that dispersion has widening, correlations have come in. We'll take into some of those those companies here in a moment.

But when you look at, let's say the financial sector, the enthusiasm that that we've seen there, there's the enthusiasm, how about the technicals? What's that's saying about the financial sector? What I think is a little bit ironic about the enthusiasm. If you look at the cell side, the Bank Group has the second fewest number of buy ratings among cell side analysts compared to any of the group, So I

would hardly call the seuth side UM overwhelmingly enthusiastic. The number of downgrades to upgrade since the election has really been staggering for the group, and that's almost hard to believe when I look at the group UM. I think the most important chart of two thousand and sixteen has been the breakout in JP Morgan. This is a stock that went nowhere for seventeen years. It peaked in March of two thousand. It was in purgatory for almost two decades,

then move through sixty five. The move to eighty I think is a game changer. I think it's the most important chart of two thousand and sixteen. Is there is there a room to run here yet? In other words, we've seen such advancement in the in the sector. Uh, is it oversold at this point? I don't think it's

remotely done. In the context of the longer term story, UM, this is a regime change to These are stocks that you could not own, not just for the last six or seven years, but really for the last ten or twelve years. What we've seen historically is when a sector stays out of favor for that ten to twelve year period UM, the next number revers tend to be quite good. We saw it with tech. Tech was out of favor from two thousand and two really up to two thousand ten.

We certainly saw with healthcare up through about two thousand nine, and we've seen it with banks the last ten to twelve years. We think this is the early endings of a new secular ble market in bank stocks, and we just want to be there. There is a bellweatherness to to black Rock. You've got a chart of that in your most recent Now, what's that telling you right now when you look at black Rock in particularly, Yeah, you know, I've always looked to black Rock as a barometer for

the broader market. It's almost a leverage plan on stocks. When black Rock is going up, the SMP tends to be going up, and conversely, when black Rock is going down, the return environment tends to be more challenging. So black Rock is another stock where it's really spent the last twenty four months, uh, not making anyone any money, and the market really didn't make anyone any money for the last twenty four months. So we welcome the breakout there

over the last several weeks. And I think importantly I welcome the breakout in the relative sense as well. I am getting paid to own this stock relative to something else. That is the other big change for financials. They've become relative plays for the first time in a decade. We're talking with Chris of her own, head of technical analysis at Fatiguous Research Partners. Let's pivot to energy. Now, if we could we see oil a bit softer this morning.

We had seen some some higher numbers earlier in the week. What do you say when you look at the energy set. When you look at oil in particular right now, Frankly, I think it's the most difficult on the street right now. As a chartist, it's not a bad picture, uh, And I could see it grinding towards sixty over the next number of months. But what tempers my enthusiasm is the history.

And when I say the history, I mean, let's remember we're only a year removed from a seventy decline in oil, and when we've seen that in the past, the next number of years have looked a lot like a big trading range where you get some pretty vicious rallies and some pretty vicious declines. Now that's certainly been the case this year. We doubled off the low, but along the way we also had another thirty percent decline in the

price of crude. So I think, in the context of how much volatility are you assuming to be long crude, that may be a bit higher than you're comfortable with. So I think mean reversion is still the name of the game when it comes to oil here, not unlike how crude behaved coming out of the six bearer market, where really the next decade was characterized by some pretty vicious trading ranges. So yes, we can grind towards sixty. I would temper my I would temper my return enthusiasm

much above that. What it's part of the dumb question here, but what what is sentiment? When you're doing technical analysis? What is what is sentiment? Exactly? What's it telling you? Right? Yeah, you know that's a great question, and I often think it's a little misinterpreted. I think it's used too often, number one. But we like to think of sentiment in one of two ways. Number One, there is the data that tells us what people say they're doing with their money.

And then secondly, there is the data that tells us what people actually are doing with their money. So surveys is positioning, and we always put a greater references on the ladder. And I think often there can be a dichotomy between what people are saying they're doing and what people are actually doing. I think we see that right now in the equity market. When I travel around and I talked to clients. There are certainly a return to animal spirits here. There is certainly, I think some sense

that people are talking like they're more bullish. But for us it really hasn't shown up yet any great extent in positioning. The street is actually still running net short SMP futures right now if you can imagine that. Now, some of that is hedging, but by and large, I don't think that's reflective of a very euphoric um, of a very euphoric environment at the moment. We're talking about correlation a moment ago or those two things often correlated, or it is one lead the other. Other words, a

sentiment lead positioning. Usually you know, typically UM, it can actually be the other way around, And you know what's been I think the most surprising part um really of all my conversations the last four or five weeks with investors really around the world is UM. I think there's been this tendency to look to November eighth or November nine as just the game changing week of the year. I disagree to some extent. I think this market really

started to change over the course of the summer. Um leadership began to change before bond yields started to go up. We saw financial start to improve by July, we saw industrial leadership all year. So in context of sentiment, I have often found it trails actual price action. I think there's a tendency in our business to feel uncomfortable with an investment idea unless you have a story to go along with it, And we actually take the other approach in our work. We think the story will follow. We

don't want to ignore price action. That to us is always more important sentiment When you look at at at sentiment of the risks that that poses for the new year. What are you seeing? Well, I think at some point, um, there's gonna be a story to tell in the first quarter where perhaps sentiment is getting a little bit too aggressive. Now it's hard enough to forecast price, it's even harder to forecast sent to me. So we'll let that develop

over the course of January and February. It's something to be on guard four as we move later into the first quarter, particularly when the seasonal backdrop gets a little bit more supportive later in the spring. All right, Christopher and stay with us if you that's Christopher own, their head of technical analysis of Fatiguous Research partners joining us here in New York. Tom and I are at the Power Breakfast of the Pier Hotels there with Morgan Stanley.

I mentioned all the economic data rattled it off here a moment ago. What are you looking forward to most this morning? What's going to tell us that the most about the state of the US economy? Drible goods GDP. What's what's the focus for you this morning? You know, GDP, it's a revised number, right, We're already looking ahead towards

what the fourth quarter is tracking. Fourth quarter is tracking not that great, right, And so that's what I'm more focused on, rather than how close to three percent did we grow in the third quarter? UM, durable goods. I don't think any data there is going to turn around, uh, the trend until we get well into what might be delivered from Trump next year, if if corporates decide to change their behavior. UM, it's just not been a good trajectory for business investment. So really it comes down to

that high frequency data of weekly jobless claims. You know, when do we start and do we start seeing layoffs rise? I mean they're at extraordinarily low levels UM, and you know how much lower can they go if say Trump's policies kick off another wave of of hiring. I mean, this is what the Fed is worried about. We've already got a tightish labor market UM and so watching those jobless claims are very important. Are we able to actually push them even lower below record historical lows or do

they start to rise? Uh? You beg the question there Until we get Donald Trump in office, there is the pros of the promise of so much change or how much do the data, like the data we're gonna get today mean and light of that, you know, things could change so radically, it seems well, I think that that's that's one thing that that worries me. No, economists are the dismal scientists, So I have to inject some sort of you know, dismal comments here already have the Nickel reference. Yeah, yeah,

I might, I might take it even darker. Um No, But what worries me is that, um, you know we we are markets are trading like it's a new day. Um. And if that new day doesn't come, what are we stuck with? We've been on a slowing trajectory for the economy. Um. You know, wage growth has not picked up meaningfully. Real disposable income on the household side is slowing pretty noticeably. Um.

And that's the world that you're left with. A business investment has been declining, that's the world you're left with if that new day doesn't come, UM, And so it worries me how willing how patient will markets be in waiting for that new day to come when you're forecasting out And again, we've heard so much about what could happen here. What could contribute most to growth? Is a tax reform, is repatriation holiday? Is it changes to regulation

and sort of gaming that out. What do you see as having potentially the most influence on on the health of the U. S economy? Well, Corporate tax reform if it's done in a way that incentivizes businesses to invest put more capex in place. UM. Personal income tax reform UH, if it's UH at the very least more fair and balance, but at least if there's enough targeted towards the lower income groups because they do spend more of those tax dollars.

You know, those are the things that get the bigger impact. UM. The The unknown here, of course, is on trade policy UM. And what I find when I talked to investors is that many of them are cherry picking Trump's policies um uh to fit into whatever desired outcome they want for the economy. And and so many are focused on the positives from tax reform and not the possible negatives from

an unknown trade policy. Uh. And so with so many unknowns, you know, we do our best to forecast what the economy might look like under Trump, but know that those forecasts have to be nimble, and it's a it's a moving timeline. It is the power breakfast at the Pier Hotel. David Gurr and I really love to attend here on Fifth Avenue. It is, of course the storied hotel part of the TAJ group. And uh, they do it right. It is. It is a quieter breakfast, which is very cool.

Can be on Twitter. They have a difficulty ignoring us, we know, but every table's taken, and even with every table taken, it's still quiet. What I would notice a coffee is off the church. It's the only reason we

got Ellen Center here Stanley empowered by Bacon. When you talk to Mr Gorman of Morgan Stanley or Mr Rhddecker of your foreign exchange shop, how do you death tail in a subpar g d P vector with Hans Rhdecker's call for a strong dollar policy from the Trump Well, I think a strong dollar, called, you know, dampens growth. So it's a tempering catcher. Uh So, for every ten percent sustained to increase in the trade weighted dollar, it can dampen GDP growth by about half a percentage point um.

And so I think what what might be missed in some of the more lofty forecasts in a post Trump world is that those forecasts should also be accompanied by a stronger dollar, which dampens overall business investment to some extent and dampens UH inflation to some extent a well as well, or limits the upside, let's say. And so I think that that has missed UH, at least in some of the more lofty forecasts I see in a post Trump world, but it plays very importantly into our

post Trump forecasts. What does the US consumer look like to you? Right now here, we are nearing the holidays, Thomas heading out afterward to buy his his satchel of gifts. I'm buying the entire a Rule Levine catalog and support of nickelback. It's going all Canadians. I'm all Canadian today. Wow, that's great. More power to a swipeho a swife of

the finger on Amazon and you're done. You're there. I'm sure they're on the deep discount anyhow, I think I think what we've seen with the U S consumer, especially this holiday season, is that they are buying more, but it deeper discounts, and so in nominal terms, sales are okay, right. And then of course, you know, you have to differentiate between big box retailers that continue to lose share UM two companies like Amazon, the the Internet retailers. I think overall, UM,

it continues to be a cautious consumer. Some of that is driven by the growing share of the population that is aging and moving into the age cohorts associated with lower rates of spending UM. But overall, in terms of the household balance sheet, I'm encouraged. It's unprecedented. You know. One of the worries is when interest rates start rising more quickly, what does that do to the household balance sheet? UM And very little of it is exposed to a

variable rate, and that's good news. It means it is interest rates rise, the interest expense on the balance sheet does not eat into disposable income in a way that it has in the past, and that can stretch the consumer cycle longer because they have more cushion to absorb a faster economy with higher interest rates or absorb a

softening of the economy is financial repression. Over with all the enthusiasm we're seeing here at the Pierre Hotel four blocks down, folks were four blocks north of the Trump Tower, we're just out of reach of the insanity. Well, I think that that uh one thing that helps, UM, but it's it's a precarious It can be a precarious situation, right.

One thing that helps is that as stock markets rise UM, that's higher net worth, higher financial net worth specifically, and if you think about the upper income household in the US UM, the top income quentile represents of all consumer we're spending. And you can pretty much tie everything that they do two asset prices to the stock market UM. And so you know, to the extent that that we're able to extend those gains or hold on to those gains,

that could be a boost to consumer spending. But then when I say precarious, I mean something has to be delivered, right for markets to hang onto these gains, because the gains are built on hope with nothing being delivered. Yet, how long does that hope last? How much time do does Congress, does the president elect have to affect something well. Now, markets are like a two year old, right, they want everything like yesterday. Um. Now, Congress can hit the ground

running on January three. There is a an eight year pent up demand for a conservative Republican agenda um that they want to deliver, and they don't have to wait for Donald Trump to be inaugurated on January twenty. If they can hit the ground running, and that can at least move the rhetoric for word um and show that they're moving in the right direction. Um. You know the fact that mid term elections, you know, politicians start to shut down in the fall of seen to get ready

for the midterm elections. So that is good news because it pushes the timeline up even further to try and get things done as quickly as possible. You don't want to lose this opportunity of having a Republican sweep with a Republican president. Uh, you know if you're a Republican in Congress, because it doesn't come around that often. Uh. And so there are some powerful incentives for things to

get done. The risk there is if things just simply don't move fast enough right off the bat for markets, and there starts to be come down your hands like Mr Trump does when he's certainly what he's talking. There you go, Ellen's got the Trump. You know, the fingers up in the air and this is this is the simbol for bread and drink. So I know which side

my glass and my plate is on the tables. Ye give me your confidence, your Trump's certitude on the strength of the American consumer, giving your subpart gdpqual So I think that the Americans consumer is strong. But let's talk about what a strong American consumer looks like. It's not three to four spending, which was debt field spending prior to the financial crisis that was also fueled by a lot of equity withdrawal from homes. You know, you take off that layer, and a strong consumer is a two

percent growth rate. Now we've been running above that, and we ran above that in because a lot of that was fueled by falling gas prices moving into seventeen. Though gas prices are not falling below their levels, and that's going to be headwind two households. Um believe it or not. But but I'm I've been constructive on the consumer for

a long time. I remain constructive on the consumer UM and I and I like, so where are chief US equity strategist Adam Parker is positioned for the consumer going into twenty well liking credit cards because it's not a retail specific play, but it's a play on households becoming more confident, more income. You know, the tax brigs coming through, tax cuts coming through that fuels credit demand. UM and

so credit cards. I like his overweight on credit cards. UM. When we look at where tax dollars are spent, UM, think about stretching out the consumer durable good cycle longer. People. You know, Tom and I talked about this earlier on on UH surveillance UM that UH new autos UM tend to garner those tax dollars. Uh. And so that stretches out that cycle longer because we've seen auto sales slowing,

you know, so perhaps the stems that slowing. UM. Furniture and home furnishings is also a category that gets the benefit of tax dollars. You know. So, so UM are our strategists are are overweight specific home builders UM and and home improvement. Right now, housing looks more mid cycle, UM. I mean part of the you know, we've been elliaching over the lack of a more robust recovery and housing for a long time, and much of that is the

the onerous regulatory overlay UM. But the good news there is that we're far from overheating, and overheating at the end of the day is really what ends a business expansion UM. And so the fact that we look more mid cycle in housing is encouraging. And b if home price growth continues along this track, we will have finally whittled away negative equity and that's been a big impediment

to middle income households. Muhammadlarian just emailed in and says good morning to Ellen Setner, Morgan Stanley dr Alarian's acclaimed phrases those unknown unknowns. What's your unknown unknown for two thousand seventeen. I think it's on what happens on trade? How far do they want to push trade? Yeah, because I think that that the zero sum presidency. Are we going to a neo merk until is America? You know? I think that I think through UM dynamic dynamic estimation

and there's another jargon alert for you, UM. I think it gives the more conservative Republicans cover in order to vote through some stimulus UM and so We don't think it's a zero sum game, but of course trade policy can make it a zero sum games. Is that ner? Morgan Stanley, thank you so much. You have a great holiday. Remind me what Mr Zuckerberg said today? What did you say? He took off against nickelback? Just like Money Bought is

my favorite song off Silver Side Up. But this is a song we all remember from fourteen years ago, David. This is a band from Canada. Mr Avril Levine. He's like an elite singer. Go who you put your trust in matters. Investors have put their trust in independent registered investment advisors to the tune of four trillion dollars. Why

they see their roles to serve, not sell. That's why Charles Schwab is committed to the success over seven thousand independent financial advisors who passionately dedicate themselves to helping people achieve their financial goals. Learn more and find your independent advisor dot com. Someone that is so valuable to speak to on America's economic policies Diane Swank. She has a huge advantage of not being on the island of Benhattan.

She has a far more, uh better, far and better perspective than many Diane Swank of DS Economics, Good morning, Diane, Good morning three point five. Is that sustainable? Allen Sander was on earlier with a cautious Morgan Stanley view, Are you living in the land of a Trump three economy or do you two need to be cautious? Um, I'm cautious. I think we're going to get a little below two on the fourth quarter. After that three and a half percent.

That will bring the europe a little higher. But we're still talking about one six one seven year, which is one of the slowest performing years of the expansion. So this is not anything to you know, write home about. The good news, as we did regain momentum after almost come into a standstill in the first half the year or so. Really the consumer was behind that, So I

think that's the good artist. We've got some momentum, and even though it's a little rocky momentum, we do have momentum carrying us regardless of policy good bet or in different at least at the start of the year. To get us into the start of the year, fold in auto sales dynamics into our subpar year. I remember the effervescence of eighteen million units did autos let us down towards a sub two percent statistic. You know, yeah, autos are peeking out. That's he issue. There's a couple of

things going on in the auto sector. We've got UM they have been issuing subprime credit for a long time. They got a waiver after the crisis that helped to do sales for quite a while. But let's face it, there's a payback to giving lower quality at it and some of it's going bad now. It's one of the sectors that certainly regulators are watching very closely in terms of how these sales, these loans are performing. They went out to sevent eight years on these loans. It was

really you know, a long time. And auto itself, the vehicles themselves or trucks UM, whether they be light trucks or autos or actually underwater very quickly on these loans. So that's one issue, and we've really kind of tapped already, you know, a very large pool of people replacing vehicles.

So the vehicle sector also with import with UM I'm sorry used vehicle of prices falling that have remember, raises the price for anyone buying a car because their trading values going down and they've been also offering incredibly deep discounts and incentives to you know, we've just gotten very well trained. We wait him out. It's a game of chicken both in you know, holiday sales and when you're

buying a vehicle. Dian, do you do you look at these data differently because of the presidential change over we're going to have here in January, the prospect of a new policy, of the prospect perhaps of great change in Washington, d C. How do you how do you read these data given that, Well, what we do know is that we had momentum going into seventeen and you know, even if no policy, unlike what the stock market had been betting only pro growth policies, they sort of delineated between

the spectrum of what could happen. On November nine, as UM President elect Trump accepted his acceptance speech, he talked about pro growth and unity, and he played down some of the more damaging trade policies. Immigration policies were now at population growth the lowest since the depression. We've got household formation flowing. Yesterday we saw the data and news on you know, record breaking young adults are living with

their parents. That without immigration means slower growth going forward, but at least we were set up in the year to look better no matter what, because we had gotten rid of some of our excess baggage that we carried into ten, and that was really an overhang of inventories, and most notably the oil bust that was already healing.

The oil and story, which had been a silver lining in that investment sector in capital goods, has been coming back and you're starting to now see that how big a driver is energy going to be here going into two that's a great question. I mean, it was an extraordinary driver, and we had a hundred dollar pre barrel oil.

We were competitive at fifty before the presidency, that the election, and now that is one of the few places the regulation I think the market's overbetting on how quickly it can ease up and create profits in the financial services sector.

But on the flip side, the regulation in the energy sector can happen fairly quickly, and um, they're already competitive, so that will be a I think we're going to see outsize games again, an investment of course outside games after having major contraction that's very um, you know, it's a big turnaround, So it will contribute a lot next year. That said, it's still not very broad base. It's still

one sector doesn't employ many people. Doing own the stream is very important for a couple of key states, but it's not broad based throughout the economy that we need. Joining us now without question, one of our most interesting guest, George Friedman, has issued his two thousand seventeen view, which links foreign policy in the military and INDUS strategic risk is well George Freeman's chairman and founder Geopolitical Futures and David, why did you start us off here on that nexus

of America's projection abroad? Yeah, you know, we've we've seen this play out here since the election, the contours of Donald Trump's foreign policy beginning to tape ship take shape. Worrisome to to some people here, George, Uh, when when you look at what's going to be the overarching issue in two thousand seventeen, is it an extension of the populism we've seen here in two thousand seventeen, Well, it's

certainly going to be an extension of opposition to extreme internationalism. Looks, since World War Two, we've had a basic fundamental belief, which is that fixed alliances in free trade are the foundation of American policy. We've seen that the alliance like NATO doesn't work extremely well. The our partners don't participate as they should. And we've also seen that we've been involved in wars all over the world for fifteen years that haven't ended well. In terms of free trade. GDP

may grow, but it's not well distributed. So you've got a worldwide rising against internationalism and reasserting the national interest and even class interest. Uh Madame Leguard, the head of the IMP, was a bloomber a couple of weeks ago, and she spoke about her worry about the globalization that happening. What's the status of what's the health of globalization at this point? Do we see a pause on the movement towards more globalization? Well, this is two thousand, Nate. We've

seen a phenomenon. Interdependence is a wonderful thing until it isn't. So in two thousand aid we saw a virus, a fairly moderate bubble in the United States insect the entire world, and eight years later the world is still staggering from the consequences of that. So the question is how do you limit viruses from spreading, how do you keep dysfunctions

in some markets from creating long term crisis. So certainly the idea that unlimited interdependence UH is good for everybody has been was disproven, and she I am F is the champion of increasing interdependence, and that seems to know just pyramid the risks. We focus a lot on how the US would fare if policy does turn more inward and you kind like this in your in your fine report.

Here a degree to which there are some countries that would do better than others if if there was more inwardness, if there was less of a globalized well, what are some others here? They're wrestling with this and trying to wait with the prospects of less globalization would be well. I mean for Europe, for example, it's been eight years

since the failures of two thousand eight. Southern Europe is in a state of depression, partly because Germany is a desperate exporter of the German GDP derives from exports UH. These countries are staggering under the load of a euro basically designed to serve Germany, and so increased inwardness in Southern Europe seems to be the only logical way to try to recover. They have been in depression for eight

years of unemployment rate. You have a single sentence, George, in your report on Russia and their projection and military mike with great fanfare. Is it for real or did you capture it perfectly? That it's all bluff, image and bluster, Which isn't Syria having no strategic importance of Russia, but it was a wonderful place to make a large impact with a relatively small force. The Russians sent a little over a hundred aircraft into the region. We have far

more than that. They carried out attacks and it made it appear that they were decisive. Well, then they're quite a while and they're still struggling to capture Leppo. But that's not the point. They managed to elevate themselves to appear of the United States at a time when their economy is staggering and when their loss of the Ukraine has never been reversed. So this is a weak country carrying out a brilliant bluff. To what exid are we culpable in? That is the US culpable in its elevation.

We're all culpable in everything. Uh, the United States wants to have very nice outcomes. It doesn't have the military means to impose them. It wants to carry out attacks and muscles without civilian attacks, civilian debts. The United States for quite a while has been carrying out a fantasy foreign policy. But the differences that, unlike the Russians, the United States tent of the world's economy. It really does have a global military force, however badly it may have

been used. The Russians really, in objective terms of power projection, just aren't there. Broadcasting live to New York, Bloomberg eleven freo to Washington, d C, Bloomberg to Boston, Bloomberg twelve hundred to San Francisco, Bloomberg nine sixty to the country, Sirius XM chad A one nineteen and around the globe the Bloomberg Radio Plus app and Bloomberg dot Com. This

is Bloomberg Surveillance and good morning. I'm Caeren Moscow along with Town Keen and David Gura, and the opening bill is brought to you by s C. I have evolving investor and regulatory demands affected your investment firms operational readiness. Imagine transforming your business with SCI's global platform at se i c dot com. Slash Imagine stocks are a little changed to lower at the open. The S and P five hundred down a tenth of upper cent or two

points to two sixty two. The Dow Jones Industrial Average down eight to nineteen thousand, nine hundred twenty nine, and the NASDAK is little changed at fifty four seven day tenure Treasury down seven thirty seconds, the yeld two point five six percent, that yield on the two year one point to zero percent. Nimex screwed oil up half percent or twenty six cents to fifty two seventy four a barrel.

Comex's gold is down to ten percent or two dollars forty cents to eleven thirty nine ounce, the Euro a dollar oh four or five eight, and the En one seventeen point six nine. Tom and David Karen thanks so much. A power breakfast at the Pier Hotel on Fifth Avenue, New York. It is a lovely, lovely place for day Girl and I to be, And I got a rounding criticism on Twitter. I was migrating to the weekend and I said Friday morning, it feels like it could be

perhaps it is a surveillance correction. James Steele of HSBC out on gold. He reaffirms support on gold eleven twenty two eleven per ounce. Uh. He believes those levels hold barring significant dollar strength. Why don't you bring us back with George George Freeman here he has the founder and chairman of Geopolitical Futures and ge which we were talking about Russia a moment to go in the degree to which that country has been elevated to a peer status

here with the US. Give us your sense of how that relationship changes as if at all here in the new year. Uh, we have President elect Donald Trump picking Rex Tillerson to be Secretary of State and making a lot for better or worse for the fact that he has had a good relationship with the Russian leadership. Do you see the relationship changing here in two thousand seventeen. Well,

we have a basic agreement already on Ukraine's frozen conflict. Uh. Government is pro Western, the Russians are hold in your position that could be formalized. But look, the real Russian problem is economy. It cannot survive very well with oil price as this, and the United States can't do anything about it. So the issue is not whether they like each other don't like each other. The issue is what is the underlying problem facing each country. The American problem

really is disengaging from them at least. The Russian problem is maintaining their economy. They're relevant to each other, so they can threaten each other and steal emails and things like that. But the fundamental questions, Uh, don't turn around personalities. You know, I'm looking at your note here, looking at your outlook for the new year, and the words stock that stood out to me. You're talking about China and the presidentiation. You call it a dictatorship pulling no punches there. Uh,

we talked about the US Russian relationship going forward. How about the U S. China relationship? What are the next turns there? We saw the incident last week. We can debate the significance of it, the gravity, gravity of it in the South China. See, how does that relationship change? You're going forward? Well, the Chinese are still dependent on exports, and the American market is desperately important to them. Uh,

China is much less important to the United States. We can substitute for most of the things that they export to US. Including rare earths. So the Chinese have the weekend. They're the sellers, were the buyers, and for all of their posturing, you know, that is the economic truth. The military truth is they don't have an amphibious capability able, for example, to invade I want. They have some ships,

but they don't have the air power. They don't have the ability to block the US missiles coming into their ships, and they only have two brigades marines. UH and the Taiwanese have tend to visions. So there are a lot of things that the media talks about that they just can't do. But they're very good at making it appear that they're more profitably are Georgia the time we got left with you. What we talked about in economics is a zero sum trade, a zero sum international economics, and

some would use the phrase neo mercantilism. The Pentagon has to deal with a new president who, by all interviews we do, who seems to be very transactional and very dealmaking. Is your world so immense that it literally is immune from a given president and immune from a new president? Or is the Pentagon actually thinking about how they're going to adapt to a zero sum zeitgeist from a new president. The Pentagon has built for certain types of wars, certain

types of military operations. It is a vast enterprise. Presidents hold off this for four years, sometimes eight. The president's ability to reshape, you know, these vast institutions and make them different is limited. So every you know, the different foreign policy and reality is vast. Policy is what you wish you could do. Reality is which you encounter. Obama realized this. He had wanted to have a completely different presidency.

Uh didn't happen. George W. Bush would never have believed that his presidency was going to be ab at war in Afghanistan and iraq Um. Reality makes a president, not the president making reality. Okay, there's a famous point where Woodward Wilson is sitting there and somebody waltzes into the room and whispers in his ear, and he changes policy. How do degrees in about six seconds? Can you fathom a president Trump being Wilsonian and being supple and amenable

to policy change. I think all presidents are supple in making policies. Now, the question is, doesn't really change anything. So let's assume that he has decided and it would be reasonable thing that he is going to withdrawal from the Middle East. You know he's spoken about that in various times and other things. How long does it take to do that? How complex can it be? How do you mitigate the consequences? So the problem I have with all the focus on policy, it's like a focus on

the wishes. I'm not sure the event you're talking about with Wilson changing the policy, but it would love to see whether it had any consequence on small things. Sure, I mean small things. Uh, it's easy to change. But on the basic structure of US foreign policy. UH, as Franklin Roosevelt discovered before World War Two, it took years to get this country ready for a change in policy and to build the military. Does it Mr Trump? Face? That's in a day of modern UH communication and tweeting.

Does he saying face the same constraints? Is FDR. Well, he faces real constraints. And it's the Republicans in the Senmates. The Republics in the Senate are most concerned about really being reelected. Trump won by a very narrow minority, actually, and they're asking the question, my better off supporting Trump or opposing Trump. It's a very reelected Remember mainstream Republicans don't like him, so far more important than Twitter is the same problem that Woodward Wilson had. He wanted the

League of Nations, the Senate didn't. He didn't get it. Always remember that the president's is not is probably the weakest leader of the Euro American world. He has the least direct power. Almost everything he wants to do has to go through Congress, and he's going to have to build some sort of relationship with Congress. Otherwise he's just making speeches. George, very quickly here about thirty seconds left

with you, unfortunately too little time. What is the dose, the first dose of realism Donald Trump is going to get when he's in office. What's the what's the first flash point? Do you think he's going to sing? Well, the first slash point he's going to he is that he's going to have to deal with the mid least issue. We've been a war fifteen years. He's attacked our policy. He has to find a different one, and it's very difficulty.

Is going to be the Congress is not going to necessarily agree with him, and that there are prices for everything that he wants to do. Uh, he has a range of things that he wants to do. None of them are easy to do, and his staff is new and they have to learn how to do things. It takes a long time for the presidential staff to settle down and do things. But most importantly, what he's going to face is that for everything he wanted to do,

there's a price. At the price is going to hurt some Americans, and undercut of Church Freeman, thank you so much, really appreciate it. With his year ahead review. Maybe David, we ought to talk to somebody who maybe worked with Carlos Goodieiras who maybe didn't want a wall across Mexico, or maybe worked with powerful senators who looked at President ABC de ar Trump and said, really, who would that

person be that we should talk to. You're talking about Ron von Jean and vonin company joining us now by phone, and there is so much political news to talk about. Tom, We've been remiss not talking about it yet. I want to get to all of that. We can talk about immigration policy, national security policy, and all of that, but first let me start with politics. Politics and the news releases that we've gotten here over the last couple of days.

President elect Donald Trump naming carlike on special advisor to the President. He'll be handling regulatory affairs. Were on great to speak with you, and let me ask you about the sentence at the end of that email announcement. Carl Icon will be advising the President in his individual capacity and will not be serving as a federal employee or a special government employee, and will not have specific duties. A two part question here, what is carl Icon going

to be doing UH? And is he somebody who could not have been confirmed? Wow, it looks like he's going to be examining the UM regulations that President Trump said he wanted to remove, at least of them that affected American jobs. So he's going to be looking at that with a microscope and making recommendations to the whiteouts and

which regulations should go into the trash can. Now. He's also reportedly UM an advisor interviewing potential UH nominees or our selections for SEC chair and UM that is that's

definitely an unconventional role. It's something but Trump trusts him, he has done deals with him in the past, UM and as looking to him for advice, So I mean he is I don't know if Carlican wanted to actually serve in the cabinet um, but he would definitely receive some scrutiny if he was under the microscope during Center confirmation by Democrats. Run you've been in Washington a long time. I know that the transition team has shied away from using the term swamp. Now they're moving on to other

soaring rhetoric. But let me ask you here just about what Diane Swamp brought up with here us here a couple hours ago. She said that, you know, it is a skill to know how to navigate Washington. You bring in a special counselor who is not of Washington. How big of a problem is that is? Is this administration beginning to reckon yet, with the fact that the bureaucracy is byzantine and you may need a guide to get

around it. Well, I think that they have a combination of insider and outsiders that are beginning to populate the White House, in the cabinet um. You know, the voters sent him, sent Trump to Washington to take a wrecking ball to the place, and a lot of the secretaries being named, you know, are going to you know, are

going to turn up turn those cabinets and Seo's upside down. UM. And while you do need to have a good sense of how Washington works to understand the levels of power, at the same time, they don't want they also want some fresh fresh bases from the outside coming into to shake things out. Right. But I particularly go to your service to Senator A Lot. Trent Lot, tell me here what the body language and day to day technical response will be of Senate leadership. Every interview we do says

they're the focal point. Can he be an executive president or does he actually have to get along with the Trent Lots of two thousand eighteen. Well, I'll tell you what I mean. You know, the fact that Republicans don't have sixty votes in the Senate means that, um, there's going to need to be some compromises. In the Senate is really the backstop, the backlog where everything is going to start piling up. So Trump is going to need

those guys. I think also, though the Republican majority owes its majority to Donald Trump, UM in a number of those states, like you know, like Pat Toomey of Pennsylvania, for example, UM, where everyone thought he was going to lose. So I think it leaves for the first hundred days, you're going to see everyone trying to get along as much as possible and um uh and and I and I. But you know, like any relationship, it's going to have some turbulence. Uh. I don't expect the turbulence over the

next couple of years. But I'm wondering the degree to which Donald Trump's election has changed the way politics gets done in Washington. Already, there's word here that Kelly Ann Conway is going to be moving to town to be a counselor to the president. You're getting a new neighbor, the Bunging company getting a new neighbor, Corey Lewandowski trading New Hampshire for Washington, d C. He's planning to set up a lodging shop a block away from the White House.

Have other politicians taken note? In other words, is the brand of politics that Donald Trump espouses something that other politicians are going to try to take on as their own. Well, you know, it's it's just that's a really good question, because Donald Trump is really a bottle to captured lightning the bottle on populism. U. Now, uh, you know, you had Bernie Sanders and the leaps. It was extremely popular too. Um So there are pots believe that politicians will emerge

out of nowhere trying to reflect the Trump brand. He is, though of forced assure. It's hard to see how someone could replicate it, but you could potentially see people understanding that there's a new way to campaign and that people are both fed up with us with complete you know, with with with the package they've been seeing over the last you know, twenty years. Ron greatly appreciate the perspective someone.

I think we'll be talking to you because we staggered January twenty Ron Bonjeane working with selected Republicans over the many years from Washington. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide on Bloomberg Radio.

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