julie: we are live at bloomberg world headquarters. here are the top stories where covering on the bloomberg in around the world. two to go until the -- hours to go until the end of trading for the year, the s&p 500 have its best year since 2013, and michael o'rourke of jones trading tells us the potential risks that could be real. says it willachs take a 5 billion july 1-time hit, citigroup could face a charge as well, but will the benefits outweigh the charges? and a reduction of the property tax reduction could have homeowners fleeing high tax states to places like florida? not all fun and games in the sunshine state, we will explain. obviously, i need the year to end if i cannot say the word

jones, but take a look at the major averages on the last day of trading, we saw the dow close at a record yesterday, coming down today along with the other major averages. so just off the record levels we have seen, the nasdaq 100 underperforming, even the nasdaq composite, but the nasdaq and nasdaq 100 of the big winners for the year, we saw a big rally and a lot of questions about whether the reliance, if you will come on the bank stocks for the year's gains are something that are a negative -- one way we are slicing and dicing it is looking at the percentage change, minus the percent of change in the s&p 500. it is 9.4 percentage points, that is the outperformance of the nasdaq. as a can see by the chart, historically it is not that unusual to see that kind of performance gap. at least by this particular measure, the nasdaq is not

necessarily signaling euphoria. joe: thank you, let's check in on the bloomberg first word news. kaylee? >> thank you, new york city fire commissioner says the blaze in the box last night is the worst in 28 years. 12 people, including four children were killed. he provided more details on how it started, earlier today. >> we found the fire started in the kitchen on the first floor. it started from a young boy, 3.5 years old, playing with the stove. the fire got started, the mother was not aware of it, was alerted by the young man screaming. she exited her apartment with her two-year-old and three-year-old, and left the door open. kailey: police promising a bigger security detail than ever before in times square for the upcoming new year's eve celebration. big caps a year that saw a number of deadly attacks,

including a vehicle as hell at the same spot where revelers will bring in the -- vehicle in the same spot where revelers will bring in the new year. and dogs will be there to sniff out expose of particles. record cold continues to grip of much of the northern u.s. temperatures below zero from new england to the northern plains. dozens of zeros -- cities setting records because of the arctic blast. the deep-freeze is expected to hang around through next week. israeli troops firing tear gas at protesters at the gaza border, more than 40 people were injured. protests have intensified since president trump recognized through some of israel's capital. there was an exchange of record five -- there is also the change of rapidfire. and parliament failed to held the -- all the president zuma accountable for misusing public funds. they have spent $70 million in taxpayer money to upgrade his private home.

while he apologized and pay back some of the money, the court ruled that parliament unlawfully shielded him from liability. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. julie: thank you. let's get back to the market and what to expect in 2018, can the bull continue to run with s&p 500 index up nearly 20% this year, or will it be time to take a breather? joining us is our chief macro trading.t from jones it seems as though the early consensus going into next year is that gains will continue, but moderate, is that the camp you are in? >> that would be a fair consensus. obviously, more bearish on the markets, i see some lists out there. i have genuine concern about the environment that we are in. joe: ok, most of the people we talked to, they say maybe we

have to keep an eye out for inflation, but really nothing, so what do you see how their that is the source of your concern -- there that is the source of your concern? michael: do we have a lot of time? [laughter] there are three things, the trifecta of trouble i call them or a triple threat, and it comes to valuation, lower volatility, and financial conditions. 500 isation, the s&p trading north of 20 times earnings, we will have record earnings this year and highest occasions obviously for next year. estimates for the s&p 500 over $100 a share, i think they will be around $135, and they come down over the course of the year , that is natural. there is optimism about the tax cut, and i think that is built into the market already. i think what we will see as multiple compression next year. and basically, historically, the only from the market has been

more expensive then now is during a recession, or during the bubble, or before the crash. so not recession periods, earnings like this are dangerous. julie: i want to skip to the last of irritable threats, because we have a chart looking at financial conditions, along with the target rate from the fed on the bloomberg. this is a chart that you sent us, it is similar. are we looking at the right thing?

chicago fed. julie: talk this through. michael: financial conditions have continued to get easier with the lowest being registered this past week, right? this is happened throughout the course of the year. it gives you an idea of how easy monetary policy has been impaired -- has been. joe: there we go. line is goinglue lower and lower. there's only a handful of instances where financial conditions have been easier than they are now. one deviationis easier than the average, basically close to that. what is remarkable is you had a tightening, a tightening with federal reserve and this is gotten easier.it shows you how easy policy was coming into the year. so as they continue to tighten and steer, and also we see banks around the world beginning to tighten, we will go from this episode of global cord needed easing over many years, to global coordinated tightening over the next couple years. so you will see the financial conditions, the easing, will disappear and it will become a more dangerous environment for stocks and bonds in financial assets in general.

joe: so what we saw at the short end of the yield curve -- i mean, we had a chart earlier in the week showing two-year yields versus the s&p dividend yield, crossing over for the first time in a long time, theoretically it should lead to compression, is that right? michael: very much along those lines. so the 10 year yield remain pegged around 2.4, i think that has to do with with a german bunds are, that is keeping the tenure lower -- 10 year lower. and again, as you said, there is more global tightening coming in the future, so you are looking at an environment where volatility is basically at the lowest it has been since the vix was created in 1990, basically the lowest in history for that. you are looking at s&p 500 multiple, it is in the 89th percentile, versus going back in 1954, so very high.

the last thing is financial conditions, also down into the 1% tile -- one percentile. it is a risk to ask it prices -- as a prices in 2018. julie: we have seen predictions that those things would reversed themselves over the course of the year, low volatility, there are few people who predicted it would last as long as it has. what is the trigger? michael: that is the key. they should be fundamental developments like more central banks starting to take away quantitative easing and moving toward the tightening policy, we will continue our tightening policy. i think that will be the catalyst. well i would watch as an investor, i would watch the financial conditions index. that is what i use for my timing indicator of, ok, it is using -- easing, you said it is not euphoric earlier, i argue and say we have euphoric complacency because everybody is getting

sleep, we haven't had this in over a year. so what i find remarkable is the biggest down day this year with a 1.8% drop, right? the average over the past five 2.9%.is 2.7%, or and the largest uptake was 1.4%, right? over the past five years, 2.7%. 10 years, 4%. so when you see the financial conditions, the graph turning up, i would get worried about asset prices. joe: what do you think about oil? michael: it is very interesting here and breaking out again. i think opec has been somewhat successful with the production cuts and managing the process there. you are talking about the u.s. shale producers, fairly disciplined, and oil starting to rebound. we have a dollar weakness going on providing a little bit of a boost. you see the inventory supply

glut in the united states work off pretty nicely, especially in the past five months when inventories are usually building. it is an improving situation. i am not in the camp where it will go back to $100, but we could have an uptrend for oil. when you see the oil prices rise, all of a sudden the november pce, they took back up to 1.8%. we will be a 2% and you have the fed meeting the inflation target, and will be on their unemployment target right now, the unemployment situation is in good shape. joe: when you look across asset -- julie: what is your best idea for next year? is it a hedge on the s&p? michael: i think that most stocks, especially u.s. stocks, are very expensive and i think emerging markets are cheaper in general. i think most sectors in the u.s. are expensive, as well as bonds. there are some commodities that are attractive because you can,

you see the fundamental supply and demand balance improving, something like gold has been under threat from bitcoin, and the strengthening dollar, we saw the dollar weaken over the past few weeks, and now gold has some life breathing the two it -- into it. i think the biggest risk is paying bad prices for extensive assets. joe: is there a scenario where this result in mediocre performance, or will this result in a severe correction, likely have not seen in a while? ishael: my concern right now asset prices for stocks and bonds are so inflated and conditions are so easy, they have ignored the fed tightening, that the biggest risk for the u.s. economy is a big financial asset correction. if we continue to move a long as we have, even if you have multiple compression just any

generic scenario like we described, 10% multiple compression in the s&p 500, it would cause damage and you know, you would see some of the gains wiped away. the hope would be you would grow into the multiple, we had 20% this year and if we have another 10% next year including the tax cut, you are talking about a government that has the finance the tax cut with new debt, probably higher rates down the line. we have come out of this almost this nirvana type environment for financial assets, the fed was so easy coming out of the crisis in cap the easy for so long, we have had asset inflation inside of consumer price -- instead of consumer price inflation. joe: they could, michael. coming up, dreamers and defense, some of the unfinished business facing president trump and congress. we will go to washington, next. julie: a look at the sector winners and losers in the s&p 500 this year.

tech was the big winner. consumer discretionary also joining the party, up almost 22%. telecom and energy shares the only two groups in the red on the year. this is bloomberg. ♪

joe: this is "bloomberg markets." julie: things are getting hectic again when the senate returns on january 3 and doug jones of alabama will be sworn in, cutting the majority of the republicans to 51-49. and the has returns on january 8. both chambers need to tackle another government shutdown deadline and trump will be a prime time giving his state of

the union a just on january 30. joining us to set the stage is anna from washington. anna, let's take the government shutdown first, because of course, we keep using the phrase kick the can. that is what they did, they pushed back the negotiations on that too later in january. what does that look like? does it look similar to the fight they had over it the first time? anna: it does, because they have not resolved at the fights they put off the last time. they did it at the end of september. they did it december 8 to get through december 22. and again through genuine 19, so we're looking at the same discussions over how immigration will get resolved, how they will come up with deferred action on childhood arrivals, the democrats have said it is a big deal for them. we also looking at how they will reauthorize the surveillance ability for the intelligence community.

and we are still looking at how the senate majority leader mitch mcconnell will fulfill his promises to senator stephen collins -- senator collins regarding health care and make it or the markets are supported after they have zeroed out the individual mandate in the tax bill. joe: just to be clear, they cannot keep punting on these things. what makes this time distinct is they need come up with agreements. anna: they do, but i have yet to agree on the basic levels of spending for discretionary spending, and until they do that, in order to get around the limits set by the budget control after of 2011, they need to do short-term measures. the appropriators will need may be a month, at least two or three weeks, in order to come up with the full appropriations package to get them to the rest of the fiscal year. until they get topline numbers on the discretionary spending, they wanted to keep doing

short-term measures and at this point it looks like we will probably be needing another stopgap measure on genuine 19. -- genuine 19. julie: with other issues, it seems as though house and senate republicans, let alone democrats, to not have much agreement, whether you are talking about immigration, or medicare and medicaid and welfare. anna: i think that we will see, this will be a big scene in january, the hard feelings coming to a head between the house and senate. there is resentment on the house side on what the senate is able or not able to accomplish, and they will have an even slimmer margin to work with in the new year, as you said, once doug jones takes his seat. it will be really hard for the senate to have the same kind of aggressive conservative agenda that many people in the house are saying, we have the majority, we have the control of both houses and the white house, we need to use this time to

further conserve our priorities -- push for our priorities. doing that against the backdrop of 2018 midterm elections. julie: the shadow that looms very large. thank you very much. joe: still ahead, 2017 was the year of tech. it dominated markets and headlines and we will get insight on the industry from one of its biggest players -- and one of its biggest players, facebook. this is bloomberg. ♪

julie: this is "bloomberg markets." julie: i'm julie hyman. joe: i'm joe weisenthal. what's the relationship between facebook and the markets, it's complicated. concerns have grown over its market dominance. caroline massar interviewed a professor on bloomberg surveillance, asking him who is afraid of facebook and why? >> i think that the first

concern of facebook is the market dominance, that is, it is the major social network and i think that it is difficult to see on the horizon anybody threatening that and whenever you add -- >> even regulators? >> they might intervene, but it is still difficult given that the market power that facebook has, it is very difficult is the alternatives. then you are concerned about, how is that market power used? if there are alternatives -- there were a lot of alternatives, it would not be a concern, but there are not. and should we try to break down facebook, i do not think that will happen anytime soon. should we try to regulate, or this is my preferred solution, should we try to make data and thatl media easier, so alternatives might arise? because i believe competition is the better solution to all the

problems. starting to have the government intervene and regulating facebook is pretty scary. >> so luigi, you talk about the fact there is not much threat of facebook at the moment, is there not a risk of creative destruction, even industry -- in an industry like tech? hope, i think that is the but the reality is there are very powerful personalities, people who say facebook defeated -- when it started. in the early phases it is much easier to switch, today facebook number one has a huge position, number two, it is effective and buying out anything that could be a potential threat. any other social network that gets any traction, they either sort of go there and they buy it

like a smaller thing for kids, they bought it out before even they had revenues. was luigi's and dollies speaking to bloomberg today -- zingales sticking a bluebird today's print julie: now the bloomberg business flash. roku the top performer of the ipo's of $100 million or more this year. in three months the device maker has set the pace with close to a 300% price increase since its first trading day. on the other end of the spectrum, blue apron, which has seen its shares dropped by more than 50% since they started trading engine. netflix -- in june. netflix scrapping cash bonuses for top executives, it eliminates deductions for bonuses for managers who make more than $1 million. there is no longer a ride off, so netflix will include the bonuses as a salary.

more on this shortly. all eyes on volatility of bitcoin, another digital coin quietly making gains. ripple the third most viable cryptocurrency after jumping yesterday, stinking up on a $73 billion valuation. bitcoin at $250 billion. and that is your business flash update. during the break, joe will come in with a difference is between ripple and the other ones. oil going for it second straight winning day. rgy the industry -- ene index down 3%. this is bloomberg. ♪

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yes! yes, indeed. amazing speed, coverage and control. all with an xfi gateway. find your awesome, and change the way you wifi. julie: from bloomberg world headquarters, this is "bloomberg markets." i'm julie hyman. commodity markets closing for the last day of the year, let's look at the big movers, starting

with the metals. here is the best-performing precious metal of the year, up more than 60%. it is used in pollution control devices. so we see the 53.5% gain over the course of the year. what about gold? it is having its best year since 2010, outpaced by bitcoin as my coworker pointed out, but gold has been on a seven-day winning streak and a shot of this month in particular. the declining dollar one of the big reasons why. in the agriculture sector, cotton was a top performer, sugar and coffee lagging with oversupply. finally, energy, take a look at year, theon the second straight yearly gain. oil was strong in the second half of the year, as production cuts started to take hold and the u.s. started to curb some of their crude inventories. the lift came in the last

quarter of the year. joe: as julie said, 2017 was a comeback year for oil, so what does 2018 hold in store? we will bring in tina davis, managing editor for commodities in the americas for bloomberg. thank you for joining us. it feels like despite the rally that we saw in oil, hitting $60, nobody believes that it will last. they are skeptical that between opec's lack of discipline and shale coming out of the earth, it cannot hold on, but maybe that is a misconception. how do people feel? tina: we did a survey of analysts and it found that the median price specifically next year would be $55 on average for the year, which as you said was below where we currently are, but also five dollars more on average compared to this year. so there is optimism, but it is tempered. we are continuing to look at what opec does and how will they

stick together with the non-opec producers, and what happened with shale. joe: before we talk about 2018, what was the set of conditions that allowed the recent breakout? tina: it was all about bringing on the five-year average stockpiles, so the u.s. specifically had a huge surplus in stockpiles from all the production here and opec away at c went at it in a conservative way. we saw the first cuts among producers take effect and it started to sink in around the third quarter, drawing down. it took longer than i thought it would, but it did have an effect. this last quarter you saw disruptions from pipelines and outages nobody could have foreseen, but it helped curb production. julie: when you look at supply and production going into 2018, what are the biggest risks? tina: i think the big risks are nezuela, it has been

teetering on the verge. do we see a decline, is there change in the administration there, that will be something we are watching closely. and iran, if donald trump moves forward with its plans to into the deal with iran, we could see what happens to that agreement. joe: are things looking bright for u.s. shale? tina: they are and you are doing your a most to lock in the prices if you are a producer. and so what we are talking about is, we have heard the mantra of shale should live within its cash flow and we are seeing it sink in a little bit more, but the rig count has increased more than 40% this year, so they are putting capital to work looking for more oil. it has plateaued a little bit, which gives people hope that they will be more disciplined. ipo, willthe iran go

it happen next year -- aramco ipo, what happened next year? tina: the saudis are adamant that it will happen, but there is a lot to be done before it is listed in the next year. the first thing we will watch closely is what location they pick for listing. we have seen theresa may and donald trump make a public pitches to get the listing in their markets, so that will be the first thing we look at, but also we will be looking for the independent audit of their reserves. it will be an interesting ipo because it will lift the skirt of saudi reserves in a way that we have nothing ever before. joe: ok, tina davis, thank you. julie: now a check on the bloomberg first word news. kailey leinz. kailey: the fire commissioner of new york city says the fire last night in the bronx was started by a three-year-old boy, his mother fleeing the apartment and leaving the door open.

she provided more details earlier today -- he provided more details earlier today. >> other than 9/11, this was the worst loss of life from a fire in 28 years. the previous fire occurring in 1990. so we are in the midst of the in theor loss of life past 10 years. emma: 12 people -- kailey: 12 people died in the fire. president trump says there will be no deal to protect immigrants brought to the u.s. you legally as children from deportation -- as children from deportation. he says, we must protect our country at all costs. daca expires on march 1 unless congress intervened. a russian spokesperson said the failure to restore ties with the

united states in 2017 is a major disappointment. he blamed what he called "ani ti-russian hysteria in washington." he said the kremlin still hopes to improve relationships with the u.s., but added "it takes two to tango." said today rajoy that he plans to cali session for the new parliament in catalonia. he made the announcement during his ear and address, about a week after catalonia's parliamentarian elections resulted in a separate us -- in the separatist party winning. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. kailey: i'm kailey leinz. this is bloomberg. julie: thank you. coming up, a tenure-track of the -- 10 year chart of the index,

showing a strong recovery for miami housing, but close to real estate could face a reckoning. from new york, this is bloomberg. ♪

joe: this is "bloomberg markets." joe: i'm joe weisenthal. julie: i'm julie hyman. time for our stock of the hour, netflix, nothing the new tax plan -- announcing that the new tax plan will change the way that they pay executives. the an activity today could be reversed next month. emma chandra is here to explain. netflix is up 55% year to date. emma: they are doing pretty well. we have a chart showing them, how they have been performing for five years, and something

like 30,000, a ridiculous amount, a pretty good return. but what i wanted to draw attention to was january tends to be a good month for netflix. we have a chart which shows stocks and how they have performed in january and you can on that netflix gains average about 22%. we need to change it so you can see it. eachhey gained about 22% january, and that outperforms the other ones, so they go of the most. -- up the most credit -- most. julie: so everybody is at home watching netflix in january. emma: and they tend to add more shows in january. it is usually a month to the want to stay in and it is a cheap form of entertainment. joe: the whole thing with executives here is interesting with the changing pay, is this

something we will see with a lot of companies as they figure out how the new tax bill will affect them? emma: we are waiting to hear from companies about how the new tax bill will affect them, pretty interesting with netflix. when i was reading into this, those executives who receive cash bonuses, will receive them as part of their salary. we have a chart to show you. and they initially introduced cash bonuses to take advantage of a deduction, that has now been removed, so now they are taking that away and rerouting it back into the salaries. ways to helpferent people save tax. joe: thank you very much. in the final stretch of 2017, great britain reached an agreement on the key printable's of its divorce from the european union, but now the hard work begins. now a new set of challenges and milestones. they say they are counting on a smooth transition, but danny

blanchflower is not so sure. we asked the professor has moved negotiations will be from here on out. >> the mpc trying to make a forecast, which is a tough thing to do and they have been bad at it, what can it assume? it can only assume of the government tells it, that this will all go along swimming make my but my suspicion is it is not. i said several times the party itself appears to be fighting like, fighting like animals in a sack, so that is not good. it does not look like there's a lot of confidence in the government, they have lost a lot of ministers, and the other thing is the economy seems to be slowing. wages are falling and of the support for brexit looks to be weakening, so that is a really big problem. and there is a government that is teetering on the edge, if you like, so i think the market -- they think this is a big worry,

they have really no other alternative than to say, we are assuming it will go well and we have our fingers crossed, and we are hoping we do not have to cut interest rates to stimulate the economy. the labor market is the slowest growing economy in europe, so this is a big problem for the government, and actually for the mpc, which raised rates wrongly in my view. >> i was talking to jonathan s&p the other day -- to jonathan s&p the other day and he said the negotiations will jog on and on. could that be the case -- drag on and on. could that be the case? david: i think so. the move is apparent. the view of what is happening in ireland, the fact you cannot have a hard border, you can have your cake and eat it as far as johnston wants, so i think yes, we will see the negotiations

dragging on. the government does not seem to have a plan. the 50 odd impact statements that the government said existed, and then said did not exist, has but the negotiations into maybe -- the credibility is in question. i think it will drag on and in the interval be pretty much a fudge, whether they leave or whether they do not leave, leaving will look like staying. so i agree that maybe that is the best hope, that the thing drags on and we do not see a major shift. that would be good for the markets and good for the u.k. economy, and it might actually show the economy picking up again. julie: that was danny blech far -- david blanchflower paid and -- david blanchflower. real estate reckoning could be closer than thought for florida. john morgan joins us from washington dc, and your story

comes at an interesting time, because there has been talk about flight of homeowners from the northeast, where they will not be taxed more as a result of the legislation, to florida, but there are factors that could put a cap on that activity. >> good point. we went down after the hurricane to follow up on reporting we had done on climate change before the storm, to seek of the storm affected the real estate market, and we found a few who are trying to sell their homes and having a hard time doing it. so people may find bargains. joe: what specifically is it about the current environment prompting people to say, i do not want to stay? jon: the storm has reawakened the doubters, that climate change is real, sea levels are rising. so if you are looking at property on a coastal area, buyers are becoming more suspicious. we found people having their homes on the market longer than expected. and many of them have been damaged by the storms, so it is

hard to ignore the reality that the sea levels are rising and there will be more extreme storms. julie: it is not just the storm, parts of the city flood on a pretty regular basis in miami, so what are we hearing about prices, about sales, about what exactly is going on? jon: experts say it is too soon to cap delete that in a data -- to calculate that any data way, but a gentleman runs a company that values real estate and he says he has more business than he can take. we spoke with a former mayor who attended a meeting for community leaders, to talk about how they can prepare their communities, he said it was sold out. they used to be not be a buddy get people to come. so there is evidence that people are looking at avoiding some of the coastal areas that are vulnerable to the sea level rises. joe: so obviously florida is a big state and it has different geographies, and typography's

and exposure to flooding, but are there particular areas where there seems to be the most anxiety, or is it anywhere on the coast? jon: right on the coast and in the inland waterways, and it is throughout the state, it is all virtually at sea level so much of the state has this trouble. and i think much of the rest of the country, the low-lying areas, they will probably be looking at something similar in the coming years. julie: what about, if you look at the housing market like miami versus in naples. miami also is known, everywhere in florida has had something of a retirement community, but also known for other types of industry, so is that more insulated? jon: is florida more insulated? julie: is miami particularly more insulated? jon: it still has lots of good restaurants and things to do, it is a desirable community for a lot of people and if you can

find a space not close to the water it may be a good place to live, but the problem is it is all at sea level and they are looking for higher ground to relocate to. joe: are we seeing signs of corporate feeling the anxiety, like they want to move or place fewer investments in florida? any signs of insurance companies changing their approach to this day in light of what is going on? jon: earlier stories, we look at the question of whether agencies are taking this into account, and they are getting some pushback from investors, saying look at what you are doing it, putting aaa ratings in those communities that will face expensive fortification costs as they raise the roads and to take other steps to mitigate against the hazards of climate change. clearly investment committees are taking it seriously. we have not looked at the question of industry so much, because i do not think we will

find a lot of industry in these residential areas, in the coastal areas, the gold coast where a lot of the homes are built, but it seems inevitable that they will need to consider it. julie: jon morgan, who wrote about this issue, you can read about on bloomberg.com. concerns over climate change. be some ofxpected to the biggest beneficiaries of the tax overhaul, but first they have to take a gut punch. we will explain. from new york, this is bloomberg. ♪

joe: this is "bloomberg markets." joe: i'm joe weisenthal. julie: i'm julie hyman. goldman sachs has joined banks in and out the tax overhaul will take a chunk of profits this year, mainly because of overseas. let's bring in our senior writer for bloomberg news, maybe i am naive, but i was surprised by

the banks and announcing these hits, because all of the sentiment and talk has been how fantastic the taxes will be for the banks specifically. >> because in the long run, it is good for them. so, i mean, the banks have one of the highest effective tax rates under the current law, that is changing, that will no longer be used. so when the rate goes down, the headline rate, while deductions go away, the deductions do not matter for the banks as much, so their effective rate goes down seriously. every year, they will keep more of their money, so that is good. initially, they need to take a right down. and goldman had both of those today and other banks have been announcing them. a two months ago some of them were already highlighting that this would have become a citigroup has a big one. for the losses they made around

the -- system, they have 20 years to keep using that to bring down their tax bills every year. and repatriation, money they have kept overseas, enough said pay the high 35% u.s. tax rate, now they will pay much lower and of certain things are excluded, so it is not that bad. joe: in the case of the deferred tax assets, they still exist, but if taxes will not be as high in the future, and the value of the assets that will do for the taxes are not worth as much, they need to recommend that right away? >> exactly. 35% and 20% is a big difference, 50% less, -- 15% less, c1 have the same tax bill, so the reduction is what you want. it will expire before you can use it up. so some of the value will be wiped out because you won't have the same tax liability in the future. julie: even though over the long

run this will be good for them, we showed a chart of how much they will probably pay, it is not nothing, $5 billion for goldman sachs, that is not an insignificant amount, so how many years of gains through the tax bills will it take for them to make up for that $5 billion that they are writing down? >> pretty fast. you have to put into this ta, deferred the d tax assets, are already deducted from the capital. regimeernational capital that was passed after the crisis, the revisions, so the capital levels already reflect that the dta's might not all come to be realized. so when they take this gigantic hit, usually when you make such a big loss your capital level is- -- ah, i have to find new money.

but this is already taken out of there, so it will not matter, it will matter zero dollars in their capital level. so it is not a big deal for them. they will move on and starting in the first quarter they will keep more of their money tax-free and give it to their shareholders, and shareholders love that. joe: just to be clear, this is interesting, but obviously the stocks do not care. it is sort of a counting story with not a lot of relevance, like economic relevance to the banks. >> it is the accounting. even accounting geeks have to explain this. i am one and -- joe: you are doing a great job. [laughter] >> these are accounting things. the dta does not matter that much and repatriation is a much smaller number for them, a couple billion here and there,

but in the long run they will keep those. , going forward the international earnings are taxed at a lower rate and there is no difference between them, you just have to pay the tax. it is lower and it has become more like the rest of the world, so everybody likes that. julie: so it is boom time for accounting geeks. thank you so much. forng up, apple apologizes slowing down older versions of the iphone, or at least not being more transparent about it. will it have lingering effects on the stock price? we will speak with dan ives. from new york, this is bloomberg. ♪

joe: this is "bloomberg markets." i'm joe weisenthal. julie: and i'm julie hyman.

we are live in bloomberg world headquarters in new york over the next hour. here are the top stories we are covering. where an hour away from the closing of trade for the month, the quarter, and the year. major indices racking up big gains, but they are taking a breather on thin trading. -.n, boris is bullish controle doesn't damage after slowing down the performance of iphones with older batteries. the company saying it was actually done to help customers. we are one hour from the close of trading for all of 2017. lackluster trading in terms of price, session, and volume. also pulling back a little bit today as well. out a smallereke game yesterday but managed to

close at a record -- smaller but managed to close at a record. i wanted to get more of an update on small caps in particular because we saw the big, strong ending to 2016 for the small caps on the perception that an incoming president trump would be better for smaller cap companies, more domestically oriented companies, and even though the tax bill did get past this year, small caps did not their to keep pace with larger cap counterparts, so this is looking at the percentage change in the russell 2000 minus that in the s&p 500. we see that underperformance in the russell 2000 this year as evidence to buy the red that we saw here. some well-known small-cap declines on the year include frontier communications -- big plunge for that stock. vitamin shoppe as well. a lot of concern about the watch business and jcpenney, which has

been struggling for quite some time now, and finally, the change in bond yields this year as we look at that part of the market. this is the net change in yields on the day. the two-year is the one that has had the big game. that is why we have seen the flattening of the yield curve here with the 10-year treasury on the bottom here in yellow, not showing much change at all. joe: thanks. let's check in on the bloomberg first word news. new york city's fire commissioner says a child playing with a stove sparked a fire that killed 12 people including four children. firefighters responded to the call in the building in the bronx and about three minutes, but by that time, a fire had spread. they were able to rescue a dozen , but several more were injured. ' leader called on

palestinians to continue protesting and to besiege american israeli embassies. in jordan, protesters gathered in front of a mosque in the city center and demonstrated against the u.s. decision but in smaller numbers compared to previous weeks since the december 6 announcement. turkey has finalized its purchase of an antimissile system from russia. the deal closed despite concerns raised by some of turkey's nato allies. turkey is now the first member of the military alliance to own russia's most advanced and defense systems as turkey strengthens ties with russia's ra's relationsnka with the u.s. and other western nations continue to deteriorate. world playerfa elects says he is honored to the state. hasnuel macron

congratulated him on his victory. thefrench president said west african nation faces its first democratic transfer of power in more than 70 years. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. julie: thanks. let's talk tech. apple doing damage control after slowing down the performance of iphones with older batteries. the company says it was actually done to help customers. let's bring in gbh insights' head of tech. apple said it is going to discount warranty batteries and says it was doing it to help customers, but isn't the real issue that customers did not know that it was doing this to help customers? >> yeah, i think it has been a

little bit of a misunderstanding, but there's no doubt this was a pr nightmare in the making. especially when you have the ,iggest cycle from iphone x, 8 8 plus that they have ever had coming up in the next year, it was crucial that cook and cupertino. ahead of this. this was something that was really starting to fester, and i do think that some of it, that they needed to sort of hit head on. i do think they did the right wing, took a step forward to contain any damage, especially if there's a lot of on the fence customers. the last thing you want them to have is a determined when it comes to an upgrade. joe: is the damage now contained? daniel: we believe it is contained. this is something we talked about earlier this week. we were pretty adamant that they needed to put something out. they did, and this really goes against typical corporate culture as well as what cook has done in the past. you are going to have some

lawsuits, which we believe are negligible, but ultimately, now, we believe it is about if this is a super cycle. we believe december came in above expectations. the make or break corners for iphone x are march and june. we do believe this is a super cycle, and i believe the damage is contained. now it is about the growth story for 2018. julie: one more thing about the batteries, not just the situation but what it might tell us -- does this indicate people are keeping phones longer and that is one of the challenges for apple? that the newer products may be are not drawing in as many -- you know, people just are not replacing their phones as often, the new ones are not maybe as exciting? daniel: it's a great point. if we go back a few years ago, the upgrade cycle was 24, 20 five months, now it is about 29 months. there's no doubt you are seeing a shift to 20 half years. you are seeing that in terms of lack of formfactor changes.

you do not have the two-year renewals through carriers. not just apple, but samsung and across the industry have been contending with. it is a more mature product speaks to whyt this is such a crucial product cycle for apple and why the last thing they needed was some sort of determined or some black cloud over this, which is why they need to get in front of it, and now it is all about can they drive the super cycle to what could be a major growth story in 2018 and then what is ahead of that. if you look at this past year, it definitely defied expectation, and now, it is about what the 2018, 2019 growth story looks like. joe: we were just looking at that one-year chart of apple. another growth story on the year, up about 40%. what do they have to do to keep investors happy? obviously, people are aware of what you describe, the slightly

elongated cycle. what will they have to execute on in 2018 and 2019 so that the people buying here are pleased with their purchase? three areas. are when we hit on with this being a super cycle, what the product upgrade looks like. the second is repatriated cash. we believe timidly about $200 billion gets repatriated. is this really going to be the year that they put that toward innovation you can but then this goes into the third area, and we believe it is really streaming content on the they site is something need to put into the software ecosystem, build a further fence around that customer base. you look at netflix, the disney-fox acquisition -- it is an arms race. we really think it is them looking for the second, third growth area. software services is definitely there.

trickabout that other that cook has, and we believe it should be on the streaming that they can organically but especially through acquisitions build that out. julie: they have sort of been nowhere on that front. netflix and amazon have left them in the dust in terms of streaming content. seen this movie before. apple is not always first is sort of the conventional wisdom, but it comes in and does things better. it seems pretty far behind at this point. daniel: oh, it is very far behind. netflix at this point is the king of the kingdom. apple -- they have been on a treadmill when it comes to the content side. i think it was really about iphone x. that will be out of the way, and

now it is about do they aggressively invest, or is it ai ? are there other areas in the wearable side? you put asterisks around content video. that is the area from a consumer play that i think they need to really go after, and i think it has been a mistake not being as aggressive as they could have then. julie: one of the themes for technology broadly in 2017 has been increasing government scrutiny or at least rhetoric about the strength of the large tech companies, their role in our lives. it has been more on the ace book-google side, but what do you think happens with that in 2018? do you think that all of the large-cap tech companies get swept up in that? >> yeah, i mean there's definitely some more village or hairs, especially facebook, alphabet. i think that is also why

facebook has played nice with regulators. -- there's definitely some more regulatory crosshairs. i think there's a little tipping of the hand that they are starting to look more within the beltway to amazon, but if you take a step back, it will always be there. i think it is something they need to contend with. they need to play nice with the beltway, which is what you have seen with facebook, alphabet. amazon is going to continue to be aggressive. you are going to continue to see a aggressiveness. regulatory is there. it is a risk, but i do not really see that as something significant, but from an m&a perspective, as we have seen with some of the big m&a and tech in the doj, that is something investors are very focused on, especially if we believe $300 billion or $400 billion gets repatriated over the next six months. looking at cisco, oracle,

alphabet. as that m&a comes, do we start to see more issues from a regulatory perspective. that's why a lot of people are watching disney-fox very closely to see that. julie: thank you so much. good to talk to you, and happy new year. joe: coming up, we will keep the focus on tech. capping off a rocky year for uber, but does investment signal a better year ahead for the ridesharing startup? this is bloomberg. ♪

joe: this is "bloomberg markets. time for the

bloomberg business flash, a look at some of the biggest business stories in the news right now. $290 billion settlement over insider trading segments. investors claim company gauge and insider trading during their unsuccessful 2014 takeover bid of allergan. ackman continues to deny the allegations but says it was in the best interest of investors to settle that case. airbus is ending the year on a high note. the company announced it will to chinairliners aircraft on the heels of airbus firming up its biggest ever order. airbus has been hampered by sluggish sales of its wide-body and ultra large jumbo jets as well as a recent shakeup in top management. even with the success of the latest "star wars film" u.s. forstic grosses will drop

2017 after back-to-back years of record-breaking numbers. of expected total intake 11.1 billion dollars will likely represent third-highest grossing year in cinema history. and that is your business flash update. joe: from the apple story we just discussed to uber striking a deal with softbank, it has been a big week for tech. alastair: hi, joe. how are you? today, we will be talking with alex webb, apple reporter extraordinaire, and andy pollack, tech news editor. and softbank, the biggest deal in tech this week and for a few months. uber's chancesnk are? is this a change from a terrible year? andy: they hope so. over once a quiet year where

they are out of the news. they hope it calls the warring in the boardroom and management if their new ceo approves the support, and we will see. can this be a year that there is more good news for uber? can they expand? can they show that maybe eventually, they will make a profit? those are big questions for them this year. alastair: what about softbank? they have this huge business fund. : if you look at it, all these companies have different strengths and different markets. i do not think people are going to expect there will be five ridesharing companies in any major city. what you will probably get is one of two dominating geographic regions and in a different region, a different company. it is kind of analogous to ining a supermarket chain

the u.k. in a different one in the u.s. they do not compete directly. in that case, i think it will be similar. alastair: apple today has big news out about their battery problems. and the problem was contained. alex: i think the probably -- the problem is contained, but that does not necessarily mean the end of the problem. that could also extend the upgrade cycle. the iphone 6 users with a once apple investors were hoping would upgrade to an iphone x -- the iphone 6 users were the ones. it might impact the likelihood of that super psycho, the huge spending on iphone x, which a lot of investors are expecting.

apple wants to keep people, but if it means they keep people on the same phone a little longer before the upgrade, they are still keeping people. maybe if apple can get a video business, it keeps people in the ecosystem. alex: that is absolutely the case when you look a few years down the line, i think, but at the moment, apple remains a hardware company. they are hoping to grow this business and in 5, 10 years, retaining those customers will pay dividends. alastair: a very difficult year for tech companies. next year, what are the big topics we will focus on? andy: one of the big issues not just in the tech issue but our culture as a whole is sexual harassment. can the tech industry higher, k, promote women in ways that are more than just one percentage point increase on their diversity numbers? what are the things they can do

to show they are making a real difference? i think that is a big issue. the past year has been all bad news. can they do something to show us that they are driving the economy and attracting the best and brightest for the entire population? alex: i think the expectation that hundreds of billions of dollars will come back from offshore accounts -- i think the reality is a lot of money is going to go to dividends and buybacks, but even at just a small portion of it goes to m&a, that could do a huge amount for the valuation of startups. apple and google do not tend to invest in companies. if those are becoming $50 million to $100 million, that will see an inflation valuation. .lastair: great well, thank you, alex. thank you, andy. still ahead, today's

options insight. here's a check on the big gainers in 2017 ahead of that session. boeing taking the cake, up 90% on the year. from new york, this is bloomberg. ♪

julie: welcome back to bloomberg markets." it's time now for options insight. dan, for the final options insight of the year. we are closing out the year close to the highs for the major averages here. as you going to 2018, is there anything underneath the surface that you are watching as potential warning signs or just signals in general? >> yeah, i think injuring 2018 is different than how we entered 2017. right now, you see continuations of the accommodations being reined in and the fed still

initiating rate hikes, so i think that is a difference we have to deal with in 2018. also, you are looking underneath the surface, the market is pretty kong, but interest rates are moving pretty dramatically. also, you are seeing -- they are setting the table for inflation, insibly, with commodities those areas continuing to show strength, so i think there is a chance for inflationary pressure . julie: do you think when it comes to equities that there are some potential risks here? do you think people should be increasing maybe there hedges going into next year? highlighting that, julie, but that first quarter, when you look at the potential, one thing that needs to be addressed is the short-term capital gains selling that might occur in january that was held in check through december into january because of the change in rates. that is something that needs to be

question some of evaluations as we going to 2018. my portfolio, put spread, risk mitigation tosk the downside. in thers nice protection first quarter. that is the 50-day moving average. if you see any weakness, i could certainly going us to the s&p moving average. julie: very quickly, you are looking at march so you kind of capture the first quarter their? this is a kind of risk

mitigation a place for the first quarter. as we enter 2018, i would not be surprised to see some second-guessing of valuation. julie: thank you so much. great to close out the year with to you.happy new year joe, back to you. joe: thanks. still ahead, borish is bullish. how much higher the chief strategist inks stocks can rise for 2018. this is bloomberg. ♪

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