Selection of secretary of state. Reportedly, president elect donald trump is close to selecting his secretary of state and the name comes from big oil. Andtillerson, the chairman ceo of exxon mobil is a worldclass dealmaker, stay tuned, according to donald trump. Alreadyators are expressing reservations because of his close ties to Vladimir Putin. Putin is a thug and murderer and anyone else who describes him as anything else is lying. We cannot have an accommodation with the russians until they understand what Ronald Reagan taught them and that is peace through strength. Right now, we have no peace and no strength. I dont know what his relationship with Vladimir Putin is, but it is a matter of concern. David joining us now is the president of the council of Foreign Relations. Book, aso author of the world in disarray. Thank you for being here. What do you make of this possible nomination . Do you agree that is where it is going and what would it mean for state . It is a hard transition, but it seems he is the clear favorite. Until it is over, it is over. The president spoke about him on fox and it was 90 likely. Mccain andfrom john others, this question of russia to hisg to be essential confirmation and it is coming at a time where russia is everywhere in the news because of the whole intelligence brouhaha. David how concerned should we be . Is it an advantage or disadvantage . He has dealt with mr. Putin and successfully. That is going to be the question, what exactly was the nature of those deals and more important, what does he think, Going Forward . It is one thing to be a businessman with a set of considerations. What they will want to know is what does he think russias policy should be on the ukraine or syria or the continuation of sanctions and that will all come to the fore. Jonathan i have heard people described exxon as a country, led by Rex Tillerson. How much different is that to run the state department . Know, hellerson, who i has tremendous what i call ground truth. He knows the details of the places he operates. All of that is clearly to the good. He has not had the publicsector experience. If you remembered what happened to paul oneill when he went from alcoa to the treasury department, it is not exactly in the annals of bureaucratic success. Else, whatnything matters is donald trump. Decides torump appoint Rex Tillerson and get through a confirmation, and he will back him 100 , that is the essential prerequisite. What you cannot do as a secretary of state and will make it impossible to succeed is if people see daylight between you and your boss. Donald trump has officially nominated retired general john kelly to the position of secretary of Homeland Security. Alix and matter who ends up getting that secretary of state job, where did the western sanctions stand against russia . You had the rise of glencore and the potential of these individuals who have closer ties or a working relationship with russia. The sanctions are still in tact and fairly extensive. It is a fairly clever arrangement to get around the letter or the spirit of the sanctions if not the letter. You are on both sides of the atlantic. You have lots of people in europe, particularly in france questioning whether the sanctions have done what they needed to do and if there ought to be some relaxation. The Donald Trump Administration with what is seen as a certain bias towards russia might put that on the table, particularly if the United States and russia worked out a deal on aleppo and more broadly, syria. The sanctions are more in play, given what is happening on both sides of the atlantic. Jonathan you bring up a good point. The position is divorced from the rest of the western world, but there are people in europe who feel that they need to scale back sanctions. This is something that they Trump Administration could actually have in common with the rest of europe. With the machinations in italy, it is hard to make predictions. You will see in europe, some distinction between sanctions linked to crimea but other sanctions potentially being reduced because of the middle east to give a little bit of play. There is a whole school of thought, not just that the sanctions are economically not making enough of a difference, but that they are kind of locking in our hands and denying flexibility. Not saying i agree, but that i was just in europe. David also, with respect to china, take a listen to what he had to say on donald on fox news. This was a call put into me. It was a very short call saying congratulations on the victory. It was a very nice call. Why should some other nation be able to say i cant take a call. It would have been very disrespectful, to be honest with you. David in that communication, he actually put the one china policy on the table, that is a departure all the way back to richard nixon. That is big. It is one thing to have taken the call, but then the followup is putting in play the one china policy, more than we have seen for decades. The chinese reactions keep getting tougher by the government spokesman. My own view is this is a policy that has worked. Hasanessa an issue, taiwan flourished economically and become a real democracy. We are able to arm taiwan. Unitedle, it enabled the states and china to build this Enormous Economic relationship and selectively cooperate on regional and global issues. Essentially, it works and if it aint broke, dont fix it. This is existential, this is not a preference, this is not a side issue. This is the core of the country, there is zero give. If you read the chinese chat rooms, the chat rooms are really issue,listic over this which suggests to me, not only is there no give on the governments part, this could make it more difficult for them to cooperate with us on north korea. Jonathan referring to taiwan is a country is one way to really irk china when it is a rogue province in their mind. Lets get you up to speed on stock movers. You had to look at oil to understand what is happening in the markets. Brent is up by about 4 . Wti has doubled since its low earlier, this year. 2 , shall up 2. 5 shell of 2. 5 . Saudi saying they could cut 2. 6 millionls barrels a day. Other movers we are watching, phillips selling 80 of its lighting unit. The stock is off by about 4 10 of 1 . Morgan stanley calling that price tag marginally disappointing. Italian banks fall on everyday big movers. Monte dei paschi and unicredit. Pursuing Capital Raising plans, trying to find investors 5. 3 billion by the end of the year to avoid any kind of rescue fund from the Italian Government. Unicredit was able to sell pioneer investments, helping them with their finances. They are selling to a moon d, making it the eighth selling to amundi, making it the eighth largest finance manager. David we will go live to vienna. One hour from now, we sit down with David Rubenstein. His take on the markets and the businessmen coming to washington. Jonathan from new york, this is bloomberg. Nation said over the weekend that they would join the opec pledge to reduce oil output, saudi arabia agreeing to cut oil by more than previously agreed. We sat down with russias minister of energy to discuss the impact of these cuts. The have to say that situation is different as we go country by country, but i was pleasantly surprised to see so many countries respond to the invitation to participate in this deal. I would have to stay say that most of the countries join us and that it is important that they join us, voluntarily. Most of these countries will be taking active measures to reduce production. Jonathan karen off the back of that, up the most, to levels we have not seen since july of 2015. W g i crude on the screen wti crude on the screen. What is saudi arabia doing this for . I talked to our cheap energy correspondent, earlier. Whether this is about putting a floor underneath the market. David the ipo of aramco needs it. Annemarie,e news, but saudi arabia front and center saying we will do whatever it takes. What is driving them to do that . that was the shocking news after they announced its opec not opec agreement. That is what we saw move the market and that is why we see brent trading above 55 a barrel. The Saudi Oil Minister says to cut below 10 Million Barrels a day is a key psychological rep level, a red line for the kingdom. They never said they wanted to go below 10 Million Barrels and this means they will be bearing an even bigger front if they decide to cut below that line. Jonathan people still question the compliance of whether these countries will follow through. Can you walk me through the cuts . On the real cuts versus natural decline, besides russia and kazakhstan, all of countries, nonopec members, they are white noise. Russia is the one to watch. No one was expecting them to significantly say they will cut 300,000 barrels a day. The two biggest exporters in the , theynext to saudi disagree on it, but they were able to come together on this deal. The one to watch in terms of real cuts for not opec is russia. As you say on compliance, who knows. Opec set up a Monitoring Committee to monitor how this is going to happen, but it will come down to p or pressure and that comes down to the saudis. They are bearing the brunt of this cut and they will put pressure on others. If they dont see their peers cutting, then it is back to market share. Alix thank you very much for joining us. For more, we are joined by richard haass. There are so many aspects of this deal. Is this a deal that goes through as planned . Teach at theed to kennedy school, the difference between design and policy and design in imitation. There is one other factor besides all the cheating and the like and that is to what extent is there a short adjustment and how does the u. S. Energy market react, if there is slack to be picked up. Historically is how nimble American Energy producers can be. Even if this goes ahead, it could be offset. Says that wont happen, the u. S. Wont respond, Goldman Sachs says not so fast. Nobody really knew to what kind of extent what kind of diplomacy has been forged between saudi arabia and russia. Is making ahink it difference in both countries, feeling pressure. 40 a barrel oil is not what their budgets are based on, and saudi arabia in particular has seen large protests against the government, against the deputy crown prince because of some of the reforms that lower revenues. Russias economy has been sinking for several years. Vladimir putin can benefit from his foreignpolicy quote unquote, compliments. Accomplishments. In thisefit situation, the two of them do that to have a case for bringing a prices. David how does this affect Foreign Relations . Richard i would say that the saudis can get a bit of time and space, but they are under tremendous pressure domestically. The russians are doing what they are doing in the middle east and the ukraine so i do not see this changing. Is somethingates of a swing producer. It used to be the saudis and now to some extent it is us. This is part of the new international relations. Oil has reentered in a way we have not seen for years. David thank you so much for being here. News out of italy over the weekend with a new Prime Minister in the making. We talk about what it means or the struggling bank, monte dei paschi. Jonathan this is bloomberg daybreak. Lets get a check of the markets. This is how the stage is set ahead of the fed, later this week. Dow futures moderately positive. Market, yield more than 250 on the u. S. 10 year. We have not seen that since october 2014. Crude getting a big pop, up 4. 5 . The mandate given to form a new a tiein government to replace his former boss. The outgoing Foreign Ministers most urgent challenge will be the troubled Banking Sector as monte dei paschi moves forward with plans to raise 4 billion euros in capital after the after the ecb rejected the banks request for more time. A sense of urgency. Some thought we might get a resolution over the weekend. How do you see things playing out . Certainly a sense of urgency. This could be one of those annoying christmas is where we have to keep an eye on it annoying christmases where we have to keep an eye on it. The italian regulators want this to be solved. There is the issue about bailing and retail creditors, but i think that can be solved and i really think that all parties involved want a solution because the fundamental reality is if you dont get a resolution, the private recap deal will likely fail and when that fails, you are stuck with an openly insolvent institution. There is really no way back, and i think that is the key story. I haven i feel like seen this movie so many times with italy. This is four on elected Prime Ministers running. We have mario monti, we had matteo renzi and now were looking to get paulo those he how will he do anything different to the ones previously . There is the monte dei paschi story which has defined which has to find some kind of solution. Then, i think an underlying theme in your question is will there be new elections and it is very likely we will see new elections at some point into next year, i just think that this issue with the banks and especially with this particular bank is something that cannot be pushed that can be pushed through regardless of whether we will have sort of a more fundamental political standoff in italy. David are you saying it can be pushed through without the new elections, even if ever wires those depositors taking a significant cut . What will happen is it will be a year of trade. It will be one of those things where they will take a hit, but then be able to seek compensation and be converted to Something Else which makes it look as if they are not really taking a hit, even though they are. This will be a eurozone type solution which will be difficult for anyone to look through. Onhink they will take a hit i think the retail creditors or depositors are going to take a hit. I think that is inevitable. Jonathan what did you make of the ecb not granting an extension of time . But was surprised by that, they are playing tougher. They really want to come out with the signal that this particular issue, the monte dei paschi issue is really resolved, now. In terms of why they did not allow the three more weeks, i cannot answer that. That was quite weird to me. Jonathan great to have you with us. Can you believe it . The last elected Prime Minister of italy. David it is extraordinary. Jonathan the banks and the politics, two stories. Coming up, we bring it back to the United States. The dow up 13 , this year. Will it continue to outperform in 2017 . Later, an exclusive interview with David Rubenstein. This is bloomberg. Jonathan from new york city, this is bloomberg. We kick off a new trading went, two days away from a Federal Reserve decision. Futures positive on the dow. Market, yields at the high since october 2014. A ton of supply coming into the market today, including 24 billion worth of threeyear notes. 1. 16 handle, a significant yen weakness. Pick,trumps probable exxon ceo, is said to be the favorite for secretary of state. Trump calling him a worldclass player. Some senators warn of his close tie to Vladimir Putin. 10yearlping push the treasury yield to 2. 5 . Saudi arabia says they will do whatever it takes. Italys future, lindsays replacement renzis Replacement Center report today. Monte dei paschi is looking at the plan after a delay was rejected by the ecb. Lets look at the front page of barons from over the weekend dow 20,000 get ready for it, apparently. What has changed is psychology, animal spirits to use a cliche, have been aroused. Industrials and financials have gone on the biggest spring in their step. The front pages more emphatic than what might be suggested. I have sat down with a market historian over the years to ask how you know when the top is in. Bullishally there is a front page out there. , peopleinly have noise get very excited, maybe a little overexcited. David so you are sort of making a call yourself. Jonathan not my business. David talking about anil spirits, their golden talking about animal spirits, they are golden. Alix and you look at the next two weeks to the end of the year. Portfolio managers are having to rebalance the portfolio to encompass the rally in banks. David to get her perspective on the equity markets, were joined by cv december many in, bank of America Merrill lynch head of u. S. Equity 70 december many subramanian. How much further can the market run up . I think animal spirits is probably the best way to put this. The one thing we have not seen in this bull market for the last seven years is absolute euphoria on stocks. We have seen tepid reallocation and a stocks. If you look at one of our indicators emily wall street strategists, they are telling you to but about half your money into stocks, which is pretty low relative to the benchmark of 60 to 65 . So next year could be a great year for stocks it we get the ,ood Case Scenario from policy we get fiscal stimulus, tax cuts, a businessfriendly administration, you know, the optimism building in the market already, as you pointed out in the barons article. That would put the market at around 2700. And the way we get there, this is the s p, the way we get there is if you apply the typical kind of late year bull market returns, which are pretty strong , to current levels of the market, you typically see about 20 , 25 returns in the last year of a bull market. That could pit next years s p at 2700, so that is a good Case Scenario. Were kind of building half of that into our market outlook. The bad Case Scenario, which is almost equally likely or maybe even more likely, is that policy disappoints. And here, what i worry about is, as you pointed out, i