Abigail were almost at the end of the year. We had a big rally, also for stocks. Not a big rally but solid gains. The dow is on pace for a record close. Right now, we do not have alltime highs. Check out this smallcap russell 2000 leading the charge of about up of. 6. The big topic, the tax overhaul. Smallcap companies are considered to be more sensitive to, considered their more meaningbased, perhaps they are more sensitive to what is happening in the u. S. 3316. Look at g btv these are not the russell 2000 Tax Companies but what we are looking at in blue are low Tax Companies. This purple, goldman sachs. And the wide to it high Tax Companies white, high Tax Companies, up 7. 7 . Deal. Ll but a done pretty interesting. It is also interesting to see the russell 2000 sensitive to taxes overall and what is happening in the u. S. G btv 32, this is a oneyear chart. The white, russell 2000 to the s p 500. It has been trending down as the husband uncertainty and volatility around the possibility of tax reform. In yellow, President Trumps Approval Rating per the real clear politics . The russell 2000 really tracking politics poll. The russell 2000 really tracking President Trumps Approval Rating pretty closely but most overall moving down. Finally, we have the russell 2000 higher today. Lets look at small cap winners. We are looking at two retail companies. Beat, aine, a sales bear short interest, so some could be a squeeze relative to fossil. And up 11 , the Pharmaceutical Company that has been raided a new buy at wainwright. The company has a 62 price target, impressive, suggesting it could more than double next year. Finally, Chicago Bridge and iron company 5 . There was recently a deal announced with mcdermott, a 6 billion deal. The stock had been trading lower but today getting a break. Julie i wanted to recap breaking news in the last 15 minutes. Boeing has been in talks to acquire a rabble aircraft maker, a brazilian a rival aircraft maker, a brazilian conglomerate. The Brazilian Company could get a substantial premium, according to the journal. The companies are awaiting word from the brazilian government, which has veto power on whether it would allow it to go through u. S. Traded shares. The ticker surging by 28 . We will update you when we have more. In the meantime, lets get outside of stocks. The success of the tax overhaul on capitol hill top of line for investors. U. S. 10 years edging lower after rising five straight days. Caron, as is jim Global Fixed Income portfolio at morgan stanley. We had this moving yields. Best that signal more what is to come . Are we going to see normalization or are we stuck where we have been all year . It is a function of where we see growth trajectory growing. People saying 2018, goodyear, we are pulling a tax reform bill, and a lot of investment can take place in 2018, but what about 2019 . If we look at consensus estimates for 2018, it is 2. 5 growth. In 2019, it falls to 2. 1 growth. If we believe consensus estimates, it will be hard for 10 year treasury yields to get meaningfully higher and stay 3 . E 2. 75 or where i think the risk is is if the tax reform starts to work, and to get Business Investment that leads to productivity, and productivity is the mothers milk of growth, and you should the baseline of growth higher, we can change the narrative for 2019. And it becomes that the risk is 2019t married growth into and then yields can move higher. That is a big if, and that is where the market is caught. Most people believe it goes up at the come back down. Vonnie why is the markets of disbelieving we will get a booming u. S. Economic growth on it . Think, iseason is, i because there is a significant advisement in the analyst community, which is to say that we have not been able to get above 2 growth and stay above it. Every time you have gotten excited about that and say, this is the year we will break out, the next year it has gone down. What has changed this time is there is a tax reform going through. Also, we had synchronized global growth. It is a global story. You put those factors together and you also have deregulation, which is another thing that has created business confidence. If you convert high psms into hard data, production data, you could be in store for a bigger boom and more sustainable boom. Now. Is a risk right we are calling something that has not occurred over the past eight years or so. We have seen a little growth and then falling down. If we shift higher in potential, we are talking about more rate hikes by the fed, higher yields, Inflation Expectations moving higher and the tenure can then move higher. Julie and they yield curve that would steepen again. I have a picture of the twoyear and 10 year spread, which have been flattening. It has picked a little over the past days. What you are talking about is still a big if. How do you position yourself . What kind of probability do you put on that upside risk and then how much hedging do you do around that . Jim one of the nice things about the in a Portfolio Manager is i do not have to make a forecast. The goal for us is to construct a portfolio that is durable, whether we get the bull economic story, so 10 year yields going up to 3 , or the story with the go to 2 and the curve flattens. I am relatively agnostic as to which way the yields go. I have a slight bias they move higher. Julie how do structure that . Jim we are seeing the fundamental backdrop is decent economic growth. Default rates still state relatively low. Credit still looks good. Highyield spreads do not necessarily compress a lot from here, but they do not necessarily widen either. We could still clip a coupon. And in emerging markets, another sector we like, and in idiosyncratic forms, there are attractive opportunities. Between 2 and 3 , that is a world and changed to me. If we break above 3 and we have to ask why that is occurring, then things change and we have to adjust. If we break below 2 , we have to adjust. Anything in that range i think is still poised to have positive returns in 2018. Vonnie i take you are loving having a portfolio these days. Jim yes. Vonnie pretty easy to find returns. Jim easy . No, but always challenging. Vonnie thank you, jim caron. Lets check in on the bloomberg first word news. Mark crumpton has more. Mark Senate Majority leader Mitch Mcconnell says he does not expect the chamber to take up changes in the welfare system in 2018. He addressed the issue at an event today in washington. I think that democrats will not be interested in the reform, so i would not expect to see that on the agenda. And what the democrats are willing to do is important because in the senate, with rare exceptions like the tax bill, we have to have democratic involvement. Mark he landed infrastructure is a key objective for next year and that a minimum, he expects technical corrections to the tax bill. Ray dalio success the tax reform bill will provide a modest, onetime boost. He predicts the u. S. Will get no longterm mileage from the bill. He called it tragic that no significance, needed changes are being made. In delran, australia, and is to be rammed into pedestrians on a crowded street. 19 were injured. The driver and another man were arrested. Police say they believe it was a deliberate act. They describe the driver as an Australian Citizen of afghan descent with Mental Health and drug issues. In germany, the trial of a man accused of bombing a bus in an attempt to profit from the dive in the soccer team shares has begun. The defender and a Police Officer were injured when three explosions at the bus as it left 11. A game on april the suspect faces a 44 count indictment, including 28 counts of attempted murder. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am mark crumpton. This is bloomberg. Julie thank you. Coming up, the republican tax plan is one signature away from law. By Corporate America is chairing, with companies promising raises and christmas bonuses. From new york, this is bloomberg. This is bloomberg markets. I am julie hyman. Vonnie i am vonnie quinn. Julie it is time for a look at some of the biggest business stories in the news now. For the first time in five years, the u. S. Government has changed the terms of the bailout for many fame pretty brady mame connie mack. They warned that having no for fannie and freddie. It is a sign the struggling Athletic Shoe industry may be on the rebound. Shares of finish line or higher after they reported an increase in comparable sales. Analyst forecasts had a drop of more 4 . They also boosted their annual forecast. And it is the start of a new era for the magazine that has covered american popculture for the last halfcentury. Coowner sold control of his Media Company to the publisher for writing and womenswear four variety. They value Rolling Stone at 100 million. Pimm President Trump is getting vonnie President Trump is getting tax cuts for christmas. A flurry of Company Press releases applauding the legislation, pledging bonuses, higher wages and charitable donations. The president has noticed. Present from at t plans to increase Capital Spending and provide 1000 special bonus to more than 200,000 u. S. Employees. And that is because of what we did, so that is pretty good. That is pretty good. Vonnie the are joined by Bloomberg News reporter matt townsend. You had a great piece yesterday saying that this at t 1000 bonus is the Way Companies are supposed to pass this on and how the legislation is to work. Matt in theory, that is the way it should work. Corporate tax saving to go to shareholders, employees or customers through Product Innovation and things like that. Most think it will go to shareholders are dividends and buybacks, a point of contention the democrats with ticize password you had one bank say they would give a raise and give bonuses. At t said they would give bonuses to lowlevel workers, so it is potentially saying as a way to persuade Public Opinion that this is a good thing and there is benefit that will go to the middle class people. Julie not just Public Opinion one persons opinion, as well it seems as though public corporations are learning how to play the president or appeal to the president a lot of criticism greeted at ts announcement, particularly because of this trying to get a big merger approved it is not its of one, sending a message to the president that we are on your side obviously, the president mentioned it about the at t announcement trumps big legislative victory, he wants to feel good about it, so companies have come out in a coordinated way oom here are a bunch of announcements and what we are doing what we are doing like 36 billion it is. It is something, but it could be a show. Vonnie lets talk about the impact on various industries. Lotnology we know, there is to repatriate. What about other industries . Matt retail. Domestic retailers pay pretty much the highest tax rates you can imagine because almost all are based in the u. S. They have a lot of needs to spend money on because they have to catch up on technology. That is one industry that might increase pay for the lowest workers they employ. Another is telecoms, so at t. They need to invest a lot in infrastructure, creating wireless networks, so that is similar to her it benefits them. About hear people tell the financial world, a big windfall for this. Industries lot of where they see it as a negative. Fore there is, like nike, example, they lowered the tax rate, they already pay a low tax rate because they are so international, so what is it like for them versus under armour, which is more u. S. Space. Julie companies have already come out to say what they would do. Sayss another company that they could add to their earnings per share. Have we had any other companies talk about concretely what this could mean for them . Matt we have not as far as raising earnings for next year. There is a lot of speculation that will happen, probably early next year, whether it is some analysts raising guidance on companies, forcing them to tell the world what they want to do, or maybe once First Quarter earnings hit, we will see where companies are then and what they project for the year. Vonnie it is time to crunch the numbers. Matt they are busy now. Vonnie and theyre looking at combinations of what they could do. Thanks to matt townsend. Still ahead, ransomware is costing more than it used to. How the rise of bitcoin despairing on the numbers and the size of demand when it comes to attacks. This is bloomberg. Vonnie this is bloomberg markets. I am vonnie quinn. Julie i am julie hyman. This years frenzy for bitcoin has spurred an escalation in online ransom attacks. As it soars to new heights, so do ransom amounts. Around mid2017, top payouts in Ransomware Attacks began to exceed 1 million, for feeding the previous of 17,000. Joining us with more is jenny simmering. First of all, explain what ransomware was. I have seen the term but walk us through what it is. Ransomware is a type of attack where the hackers go in, they lock up your files and say, if you want this back, you have to pay the ransom. Typically, they are demanded in bitcoin. Vonnie and theres usually a countdown talk and you did not have long to think about it and your reputation is at risk. Apparently, there is something called ransom insurance. How long has it been around . Can go back to the 1970s, when wealthy families and corporations got worried people would get kidnapped, so insurers said we will ensure against the price of the ransom. Flashforward 40 years, and were looking at Ransomware Attacks. They had developed within their cyber coverage the whole suite of coverage that covers these attacks, as well. It is not just paying the ransom. It is figuring out who you are dealing with. These companies can be cut paying terrorist and that violates a bunch of laws. To have investigators, negotiators, people who understand they call the attack vectors they understand where attacks come from. On top of paying the ransom, they do investigative stuff. Julie it is difficult 20 limit bitcoin is all you know when dealing with bitcoin because i know about the other person is a number. Bitcoin has soared, but as a hacker, am i not asking to bitcoin if the price goes up so much . Are the keeping the number they ask for constant, even though prices soared . Enny exactly. Perform a ransom attack. It is hard to adjust the price of the demand. In march, when bitcoin was trading at 1000, it was not so costly for insurers. Now, if they are still demanding that one dollar and it is worth 16,000, it is more costly. Vonnie it seems problematic. If you have ransom insurance, you will probably just paid the attacker because you will get that back in the insurance. Every time you do that, the premium goes up and for others, too. Where does it end . Jenny a big discussion on whether or not companies will pay. They try to get people proactive. Makes you have backups so you do not have to pay the ransom. You do not know who you are paying. If you get caught funding a terrorist organization overseas, you could be in a lot of trouble. There is discussion about whether or not paying the ransom is a good idea. If you go that route, it definitely teaches bad behavior because the hackers no they can probably know they can probably do it again. Julie there estimates if this is going up or down. Jenny some hackers have gotten wise so they are pricing the ransoms lower in an attempt to get the investment. They want more people to pay, they get more bitcoin, and they watch investments grow. She wentenny surane, undercover for the story. Our thanks. Check out her story. Coming up, highlights from our interview with Brian Moynihan. We will talk about growth strategy. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Vonnie it looks like an absolutely Beautiful Day in midtown manhattan. Im vonnie quinn. Julie im julie hyman. This is bloomberg markets. The dow is up. 4 . The s p 500 eking out a gain of. 3 . It has been higher for all of the session. The top mover, discovery communications. The nasdaq is also up. 3 . The 10 year yield is 2. 48 . Futures upde oil around. 3 . Now, lets get to the first word news this afternoon. Mark President Trump is calling on House Republicans to pass a spending bill to prevent a government shutdown. In a tweet today, the president accused democrats of wanting a shutdown in order to distract from the very popular just past tax cuts. The president is calling on members of the gop to pass a continuing resolution that would keep the government open beyond tomorrows deadline for a spending bill. Theresa may resumed her eu offensive today shes in poland where shes trying to win more friends before talks on postbrexit trade negotiations begin in march. May is making the trip after telling her deputy he had to resign. An investigation found green made misleading statements about pornography found on his computer almost a decade ago. The uns General Assembly has voted 1209 to declare u. S. Recognition of drew as israels capital null and void jerusalem as israels capital null and void. President erdogan criticized President Trumps decision to recognize drizzling as israels capital recognize jerusalem as israels capital. Pope francis used his christmas vatican,to address the announcing the cancer of faith, stressing dedication to root out corruption in the church. He said to preside over the final rights of the funeral mass for the former archbishop of boston who helped cover up child sex abuse in the church. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im mark crumpton. This is bloomberg. Vonnie despite Rising Consumer debt, Brian Moynihan is not among those concerned about credit because borrowers have kept up with payments, he says, thanks to record low unemployment. Also talked about how the bank is trend to grow responsibly. Trying to grow responsibly. , wen there are strategies want people to think about the transition where the world that we are making Tremendous Investments in the platform. We had to get people to switch. We have to win in the marketplace and be successful for clients. The second response is doing it on a customer focused basis. We have no desire to make acquisitions. It is all organic, customer driven. The third part, manage the risk well. The bad times, you know what the problems are. The good times, its a question of what the problem will be. The fourth part is being sustainable. Having the best place for people to work. Having operational license. Getting all of that to work is what we are driving at. If you think about us going forward, what are we going to do . We have a consumer business of mortgages,dit cards, auto loans. We are driving that through, providing better and better client service. You keep investing in the business. All the while, the costs of operations are coming down. How do we continue to take out costs . Its historical and efficiencies that inefficiencies, automation, digitization of payment. Thats what we are going on. We are number one in the united states. Its great brands. How do we now deal with revenue depression . And the automation of the practice. How do you make a Financial Advisor with the ability to do more and offload more work to make you more successful see you can spend more time with clients so you can spend more time with the clients . The corporate side, we have a tremendous commercial business. There is helping support these clients and helping them grow. Their judgment is opportunity for us to do Capital Markets activities for midsize clients. Our market share is single digits. It should be multiple of that. You go into the Corporate Investment banking markets. We will always invest in the top players. It will be constrained a bit by the amount of risk we are willing to take. To project out this quarters earned revenue. Its not really moving up and down you compare quarter to quarter, destabilize. The team has done a great job the team has done a great job. David lets talk about trading for a second. The existential question for the major banks. Every quarter, we look at that. Are you sing that basically we dont need to grow the top line . Doing that might incur more risk . We can increase profitability through Interest Rates . Brian i risk from 2010 to now in fixed income, it was 10 of the risk bubble. It would be four times less. You are making them as much revenue or more. Its moving stuff through the system as opposed to having big Balance Sheets you are storing assets in. We are big fixed income players because we have big investment clients and we match them together and bring them together. You have to automate that business. It, theythat works on they can to that trade whole loans by getting bids around the market through an automated bidding system they built. You get in these very important ways to improve the profitability of it without necessarily growing the top line beyond what the market will give you as it generally grows and ebbs and flows in volatility. Thats what you are trying to follow. Market and the clients, at the independent risk you are taking. Vonnie that was david westins exclusive interview with Brian Moynihan. Julie breaking headlines out of washington. The house is planning a vote on a stopgap spending bill between 4 30 and 5 00 p. M. Today. They vote on a disaster aid bill around 5 p. M. There continues to be news out of washington. Vonnie rand paul threatening to force a senate vote on whether to let the pay it would have to go back to the house. Some obstacles there. Julie im sure these folks are anxious to depart for their christmas holiday. Coming up, a market reckoning on the horizon . Thats what some Money Managers are saying. Fundsings hedge are looking for next year. Julie this is bloomberg markets. Vonnie time for our stock of the hour. Carmax shares lower after reporting earnings. They put up in ok third quarter. The headline comp sales number trending down. Investors are worried about that. Plus, the number of cars sold less than expected. The broader theme is the idea that they will have a flood of a fleet ofitting used cars hitting the new car market which will cause new car pricing to come down which will then in turn put price pressure on to the used car market because consumers will go for the cheaper new car as opposed to the used car. Wall street analysts quite often have these themes wrong. Or they can be kind of shortlived. This is a longterm chart of carmax in relation to its 200 Day Moving Average and yellow. The fact that both are rising, the buyer is in control. When the 200 Day Moving Average when the stock has moved below it, it tends to come back up toward it. Even if that negative theme does come to play, perhaps the other side will come in. Mile are relatively low used cars coming off the market. That will not be a positive for carmax in the immediate to longterm. Julie we have a headline on liberty global. Vonnie this is from the Financial Times. Liberty global is nearing a 2 billion austria sale to deutsche telekom. This is according to the Financial Times reporting. We will continue to bring you uptodate on this news. Julie a new u. S. President and rising geopolitical tension couldnt stop stock markets from marching higher this year. Money managers are warning the possible reckoning on the horizon. Joining us with the top teams that Hedge Fund Firms are looking for next year talk about what they are looking for. You were seeing some of this coming into this year as well. Predictions we would see an uptick in volatility and it doesnt materialize. The Hedge Fund Titan is saying the pullback in qe is going to potentially trigger a downward spiral in asset prices. This current environment is dangerous. Investors investors have been walled into a false sense of complacency. They will be shocked and may struggle to get out. Preparedur people not are people not prepared for increased volatility for eight years now . Its yet to be seen whether these actually do play out. Qe doesnt seem to be the main trigger it does seem to be the main trigger. They have been expecting this for quite some time. The macro funds that make money on volatility have been struggling. They are desperately waiting for change. Julie one of the places we have seen volatility has been cryptocurrency. Funds andedge participating . The smaller ones have been jumping into the space. The bigger managers seem to be waiting on the sidelines to see how it plays out. When minister says he expects to this that could legitimacy one minister says he expected see a bitcoin next year. That could lend legitimacy. This concerns over security that need to be addressed. Vonnie what about tax policy changing now . Hedge funds already trying to figure out how they can make money on these changes. Its expected to create more divergence. Certain companies will be impacted differently based on where they are located and how much debt they own. Impacte hoping it will the stock prices and create more opportunity to trade around them. Small and midcap stocks might do well. Julie how about geopolitics . We havent seen asset reaction to the various view political events this year . Geopolitical the various geopolitical events this year. One manager says he expects to see a reckoning as it pertains to north korea. One alluded to north korea as a potential pothole as he looks through to next year. ,ensions with the middle east certainly something the industry is watching for. Hard to predict, but its on their radar, absolutely. Are hedgeow much ou funds getting into europe . Theyve been stepping away from europe. Somemight be helping potential managers that are still in the space. There is less competition in the area for hedge funds right now. Active investors might be added benefit. That might be might be added benefit. Active be investors might be at a benefit. Vonnie this move comes as you as Companies Work u. S. Companies work to determine how the tax changes will affect their wallets. Joining us now, laura. Jeffries is saying you can have it in november or december. Would you like to receive the payment in january or move it up to december . Normally, the traders get it in january. Julie this has to do with the tax bill. You would have to consult with your accountant or figure out we are still figuring out what is in the bill, how it will affect individuals. Employees . Ring from reportinghis body of we been doing over the past couple of weeks talking to traders and bankers. They are consulting with their accountants or lawyers trying to figure out if i do this, what are the ways i can not end up paying the twoyear tax . For certain employees, it made sense to see it in december. For others, they want to keep it in january. Vonnie it depends on how much you are getting for a bonus. Jeffries is being generous. We found they are paying their employees more on average than they have since the financial crisis. Average. Is the keller, thank you for bringing us that scoop on jeffries. Coming up, it is classic some prime coming up, it is classic subprime. It is the current u. S. Auto industry. We will discuss, next. From new york, this is bloomberg. Vonnie this is bloomberg markets. Julie subprime auto lending is long and winding and private equity firms are in for a bumpy ride. Delinquencies are soaring toward crisis levels. Joining us with more on the story, clear boston. This is something we been watching for a while and some people happen raising the alarm. These various private equity firms are feeling the pain from rising defaults. Thank you for having me on. A lot of private equity firms came into the subprime auto finance space after the crisis. Theyey tried to grow, might have grown a bit too quickly. Toy were extending credit less creditworthy borrowers. A lot of times these guys want to exit their investment in 46 years. Vonnie explain how they go about lending. These guys work with dealerships. They get bank clients directly from big banks and then work with dealers to help the dealers finance their loans to these car customers. As a result, they take on that credit risk. Vonnie one was going tos been spin off into an ipo. 2015 but it has just been kind of languishing there. The market has become a lot more difficult to bring in new money. Julie what has been the big issue here . The number of the liquids is the link when sees the number of delinquencies . You can get more on these loans. They have been lending to riskier borrowers. A lot of them are backing away from a very risky borrower to tighten up with a lend to that who they lend to to tighten who they lend to to tighten up who they lend to. Vonnie do they try to pivot out of these businesses or stay in the game . Their goal is to stay in the game to help make these guys profitable with the hopes of exiting later. They can stay in these for a bit longer. Its just not as fast as it has been in past markets. Julie as we have been describing this, it does sound a lot like subprime loans in the mortgage market. I like that, as you say, they are sticking with it. Have we seen any bankruptcies . Anymore signs of trouble . Or just a sense of having to stay with it longer. Delinquency rate is a problem but this is a different market in a lot of ways. Car loans are shorter. Its hard to walk away from your car if you need a car to get to work. Vonnie the link with you rates up just under 10 now delinquency rates are up to just under 10 now. Theres a believe that we may not have seen the worst of it yet. It may go a bit higher. It may end up leveling off in the future. Vonnie is this a geographic element . Are there places where the delinquencies are a lot worse . We get a lot of interesting data. More of them tend to be in the south. There is a regional element there. Julie we will keep watching to see if these guys can get profitable at some point. Ahead, whats next for republican lawmakers after their tax bill victory . We will be asking Cathy Mcmorris rodgers of washington. You can catch all of our interviews on the bloomberg. Just type in tv. You can watch back and look at our charts and ask our guests a question. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. From00 in washington, bloombergs World Headquarters in new york, i am david westin. Julie and i am julie hyman. Welcome to bloomberg balance of power. David lower taxes but do we have a government . Tomorrow, Congress Faces another spending deadline between deadline with a choice between kicking the can down the up in the air, brexit indecision puts london Bank Employees and their families in a tough spot. We talked with the bank of america ceo about the toll it is taking. Julie congress notched a big win with tax reform but now has to keep the lights on. House gop leaders are expected to vote on a strippeddown spending bill before leaving