Today, along with utilities. The dollar index weaker. Lets get to the markets now. Joining us in studio is Dennis Debusschere, evercore isi head of portfolio strategy. We have a great piece on the bloomberg today talking about the decade beginning with everything crumbling and a lot of panic, and now we are heading into a new year when apparently nothing can go wrong. Dennis i think part of the reasons the market is acting like that is because people think everything is going to go wrong. That has created what we call the silent melt up. This is actually related to the fire and ice title, which i think is excellent, because there has been a complete change in the relationship between bonds and equities. Bonds are longer duration assets as they had against lung equity exposure globally. That is usually a deflation hedge. Deflation was not something that existed preGlobal Financial crisis. There areist now, and only three Asset Classes you can hedge for deflation. That has anchored 10 year rates. That is why your term premium is 90 basis points, according to the fed. Stocks still look pretty attractive. 80 of S P Companies have total cash fields, including dividends plus buybacks, above treasury yields. We have never seen anything like that. Vonnie when you talk about deflation, talk about where you are seeing that and what you mean. Dennis deflation hedging. We dont actually see deflation hedging. We see very low inflation. We see, since the Global Financial crisis, this desire to hedge against potential deflation. That is not something that existed prior to the Global Financial crisis. It was believed that Monetary Policy could always cause inflation. When that turned out not to be totally true, when it turned out Monetary Policy was a relatively weak tool, that change the dynamics. It created a lot of uncertainty. To created fire and ice, a lot of uncertainty. Has done is change the dynamics in Asset Classes, where bonds are telling you Something Different than they did historically. They are now a deflation hedge. Thats where you go to offset equity risks. As long as your cash returns are high and you are using that, so your riskfree rate is below your gdp trend growth rate, stocks are really attractive. Vonnie i just want to dig in a little bit more into the idea of deflation hedging. Do you see deflation at some point down the line . We are not seeing any of the expectation readings we are seeing from the consumer. Dennis great question. You dont see it, but it seems fairly high odds that in the next recession, which i think most would argue is fairly likely in the next 10 years, you wouldnt necessarily have deflation, but you would have significant weaker economic growth, inflation that is going to trend lower at a time where Monetary Policy will not be as effective. Because that would be such a negative scenario, you hedge that risk with Long Duration assets like treasuries. So it is just the probability of saying over the next 10 years, is there likely to be a recession . Yes. How do i offset that . Vonnie so youre saying the on the saw in treasuries 10 years think to active participants much more so than the federal reserve, for example. Dennis absolutely. I dont want to give you a sense ofs false precision on this, but i would say the majority has to do with some sort of deflation hedging, a lack of safe assets globally. Vonnie and this is why your look on 2020 is how i learned to stop worrying and love the markets. Dennis weve been fading the idea that Recession Risk was high. As long as consumers are strong, labor markets are strong, and inflation rates are dropping globally, it is hard for us to see recession. If consumers are coming into your store and buying things, they are going to produce. It is highly unlikely we see a recession outside of a shock. The other dynamic that would change it is significantly higher inflation. I would bet on, i thought was to bet on something that would change our view of the market, i think we had two more towards higher inflation then we would disinflation or deflationary recession. There doesnt seem to be a political constituency out there in fair for in favor of lower deficits. There seems to be a significant amount of governments in the developed world with the desire to increase fiscal spending at a time when unemployment rates are very low globally. So as we test this idea of the flex curve is broken, we test these ideas that inflation is low forever and will push toward zero, maybe we will see higher inflation. I am not saying that. Thats not a base case. Just think thats where the more interesting risk is there to thing about. Point and on the ism measuring the economy, do you see any sort of effect on the industrial economy . Do you think deficits will continue to rise, in spite of things like china trade wars and so on . Do you think the old dynamics at play when it comes to the industrial economy, but new dynamics are at play for the retail economy . Dennis exactly. The economy is roughly 70 or more consumer based. Reallyustrial economy is dependent on significant china stimulus, really dependent on emergingmarket stimulus. We are not going to see much Industrial Production in the u. S. Like we have seen in different type of economies. It is tough for us to get excited about the industrial side of the economy, i. E. , will we see reflation in classic terms like you saw in tony 13, 2016 . 2016 . 2013, doubted. Then you would get excited about capexdustrial economy, increasing, but it is not really there. Gdp growth is going to be ok. I dont see much deviation, unless we start to see more fiscal stimulus and unemployment. Then you could see inflation measures kick up. Vonnie we are just cutting started. Dennis debusschere, we have more time. First, lets get some first word news with viviana hurtado. Viviana the transition period for the u. K. s exit from the European Union may take longer than originally thought. European Commission President ursula von der leyen telling a french nurse paper a french newspaper she is worried about how much time is left. After a landslide primary victory, israeli Prime MinisterBenjamin Netanyahu is looking ahead. He will need a big win in National Elections in march to stay in office. Escapinghope of corruption charges is to gain a majority that would grant him immunity. Over to southern australia, where temperatures are soaring to a blistering 108 degrees fahrenheit. Farther east, firefighters continue to battle bushfires. They are trying to gain more ground on the blazes before a heat wave hits this weekend. About 70 fires are burning across australia. Nearly half are not contained. Theyve destroyed dozens of homes. Russia confirming it will appeal its fouryear olympic ban for doping. The Russian Antidoping Agency disagrees with the assessment by the world antidoping agency. The case now heads to an arbitration court. The russian teams are banned from next years olympics and the 2022 world cup. Global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Im viviana hurtado. This is bloomberg. Vonnie thank you. Dont forget, bloomberg subscribers can watch us live and catch up on key interviews featured on Bloomberg Television using the function tv. You can also interact with our shows i sending instant messages on that page. Check it out, tv. More with Evercore IsisDennis Debusschere next. This is bloomberg. Live from new york, im vonnie quinn. This is bloomberg markets. Lets check markets now with abigail doolittle. Abigail take a look at the dow, the s p 500 here in the u. S. Or the nasdaq, i should say, flipping between small gains and losses, earlier putting in alltime highs. We will take a look at a chart any moment. The nasdaq headed perhaps for its first down day in 12. The ftse 100 down fractionally, the stocks 600 the stoxx 600 up. As for the nasdaq, lets take a look at a 12 day chart. As of yesterday, 11 updates in a row, 11 up days in a having its best run from a daily gain perspective going back to a decade, since 2009. It will be interesting to see whether the nasdaq and put in the 12th update in a row. On the year, up 35 , on pace for the best year since 2009. Speaking of big gains, when we go into the bloomberg terminal and take a look at the s p 500, these are the annual gains. Right now up more than 29 this year, headed for its best year since 2013. About s p 500 contact on 0. 4 , that will be the best gain going back all the way to 1997. That is the degree of buying power we are seeing this year for the s p 500, truly climbing that wall. On the day, where we have some bigger gains, the Consumer Discretionary sector is the top sector on the day, up 0. 3 . Gaining on. 2 , still that record holiday. Last year was a better year for amazon than right now. We will see what happens for the end of the year. Take a look at rite aid, up 11 right now, up for the sixth day in arroyo in a row on a strong earnings report. Best day for rite aid going d. K to 1980 when they ipo vonnie with a still is Dennis Debusschere, evercore isi head of portfolio strategy. A lot more to get to. At 3400 is aing target for 2020 20 on the s p. Have you changed that . Dennis no, it is still 3400. If we were to bias, it would be up, not down. We set it to every client we meet with, that the s p is the most attractive asset class when you have inflation pinned and earnings growing. We expect earnings to grow next year. People find that pretty high. The way you get there is pretty simple. Share of revenue growth, i dont think a people would be higher this year than 2018, and the dollar increased. Capex is going to be lower next year, which means more buybacks. The dollar influence is not going to be there, so six plus three, 6 revenue growth, 3 from buybacks, that is 9 right there. If you want to be negative on earnings, youre going to have to make a call for produce ignatik and margin contraction, which doesnt seem likely. Vonnie youd think buybacks are going to continue, which would make spending more likely which would make capex spending more likely . Benis there doesnt seem to Capacity Utilization very low. It doesnt seem like there is pentup demand for Capital Expenditure project. Thats one. The other point is buybacks are going to slow because a lot of companies have levered up to buy back stock, and will not be able to do that anymore because her growth is slowing. People dont realize that 15 of companies are response but for 80 of buybacks. It is the mega caps. Apple, microsoft, google, etc. That is just going to continue. They can do plenty of capex and plenty of buybacks along with it. For comfortable with that. The bear would have to come back and say margins are going to go down significantly. Thats how you get to a lower earnings number, and we just dont see that because of the change in makeup in the s p which we discussed in the previous segment. Vonnie you discussed cyclicals, and you think they will continue to do well. Sonis we like cyclicals, financials are particularly attractive currency. You should see some uptick in the long rate, so the yield curve will steepen. The fed is still going to be accommodative. Tech, big cap in particular, is still really attractive because of what i said earlier. The rest of the world looks at big tech is almost as good as the treasury yield, especially if apple is going to reduce its share count over the next five years, and things like that in other big Tech Companies. Tech, industrials, financials, premuch cyclicals across the board. Vonnie what are people who are seeing 3. 4 Earnings Growth missing . Dennis i think they are too negative on margins and give a low probability to buybacks. Vonnie does the election outcome, whatever it may be, change your forecast . Dennis yes. [laughter] tails very simply, if the was elected and i dont mean this from a political view which is, say, warren or sanders, and taxes went higher, maybe back to the old rate, that is clearly a significant negative for future expected cash returns and multiples come down significantly. On the trump side, more of the same. I think the only risk would be if another four years of donald means you also have harder china policy, more huaweitype scenarios with specific risks for Tech Companies. Vonnie are the headlines we have been trading on, does that stop in 2020 . And wait for an outcome does the market ignore headlines and wait for an outcome . Dennis yes, on a macrolevel. The shift will lead to more specific measures on National Security issues as it relates to Tech Companies in china and certain u. S. Companies that do business with them. List ofnd up with a 200, 300 names of Chinese Companies we cant do business with for National Security reasons, and then they come back at us, you could have very specific company risks, but at a macrolevel, market wont care. Vonnie always fascinating to speak with you. It was a nice end of your conversation. Thats Dennis Debusschere, evercore isi head of portfolio strategy. Muni moment is next. This is bloomberg. Vonnie live from new york, im vonnie quinn. This is bloomberg markets. Time now for muni moment. We are not only closing out a year, but a decade in munis. For the asset class, returns over 53 for that time. Taylor riggs has more from san francisco. Taylor what a return in the decade that has been. 20 meter discuss all of this is tom kozlik of hilltop securities. Ofjoining me to discuss all this is tom kozlik of hilltop securities. As you look back, what is the big theme that sticks out to you . Tom we saw a real increased role of the federal government, whether it be the recovery act, the bonds program, and also a significant amount of money that went into Disaster Relief in different areas. One of the things i would be concerned about Going Forward is political the political conflict we saw last decade are something we see not only in 2020, but in the medium term Going Forward. Taylor we also mentioned a huge runup in taxable supply this year. What is the runup for the taxable portion of the market . Tom thats one of the reasons 2020y volume forecast for is 450 billion. A significant amount of that is going to be taxable. We really sign increase the amount of taxable issuance start in the end of august, when rates fell significantly. I thing as long as rates stay where they are or potentially even fall, we are going to can didnt to see a decent amount of taxable issuance. One of the things happening is theres been an increased amount fromterest in municipals International Buyers and crossover buyers. After a 10 , 11 runup in taxable yield, this credit have more room to run next year . Tom i think the things i am looking for in credit at the state and local government level , i have cautious outlooks on the state sector and the local government sector. Pensions are differently factoring into that. That is not necessarily a 20 issue is much as a mediumterm issue, but also, we are wondering how it is that state and local governments are going to be able to react to the next downturn, whenever it is that happens. That is something i am watching very closely. Tom kozlik of hilltop securities, thank you for joining me on this friday. Vonnie taylor riggs, thank you for the muni moment. It is time for your Bloomberg Business flash. Banks around the world unveiling the biggest round of job cuts in four years. Or than 50 lenders announced plans to eliminate nearly 78,000 jobs. Say a slowing economy and adapting to the digital economy. Morgan stanley is the latest to issue pink slips. About 1500 jobs have been slashed. The man who claims he invented the Worlds Largest cryptocurrency says he may not be able to abide by a judges order to surrender some of his bitcoin fortune anytime soon. Earlier this month, a federal judge in florida found australian scientist craig documentsmitted false claiming he owed another man half of all the bitcoin he had mined. He says he is not sure he will have the information he needs in time to it and if i the coins he has to split. Shares of qiagen tumbled more than 20 today, the biggest drop since october. It hasch company says decided to continue as a standalone business. An acquisition could still happen. That is your latest Bloomberg Business flash. Still ahead, its been a tough year for bankers. Jobs are going thanks to slowing economies, greater efficiencies as well from technologies. We will crunch the numbers next. This is bloomberg. Vonnie live from new york, im vonnie quinn. This is bloomberg markets. Lets check in on the first word news. Heres viviana hurtado. Viviana in hong kong over the christmas holiday, black clad protesters smashing store windows. Please was bonding with tear gas. Police say those detained include children is in is 12. Since protests began children is in is 12 children as young as 12. Over to india, where violent protests continue. Today come up Paramilitary Police forces were deployed in muslim majority districts. Nearly two dozen people have been killed, 1000 arrested in the nationwide demonstrations. Protesters are against a new citizenship law. , the secretaryar of state morning allowing renewed rep and sales renewed weapons sales to iran into the country would be allowed to go create global turmoil dashed allowed to allowed to create global turmoil. Japan ca