Budget Deal: Pigs Fly In Washington?

Takeaway: There is some (potentially) positive and negative news for the ailing U.S. Dollar as flying pigs descend upon Washington.

This note was originally published December 11, 2013 at 11:30 in Macro

Budget Deal: Pigs Fly In Washington? - pig


For the 99% of Americans who fail to find the vagaries of federal budget accounting and the interminable tragicomedy that is bipartisan budget negotiations scintillating, the following link provides a summary review of sequestration and the key provisions/budget impacts  >>    SEQUESTRATION 2014: WHAT'S THE IMPACT AGAIN?


Below we provide a quick update on how the emergent accord between Representative Ryan and Senator Murray impacts the numbers.


Late yesterday we got the latest (prospective) chapter in the budget debate and ongoing evolution of the Budget Control Act – the 2011 legislation which defined discretionary spending levels over the balance of the decade.   The crux of the budget deal – ‘sequester relief’ via higher spending - is highlighted in the following table. 


Summarily, the agreement proposes to raise spending levels by a combined $63B over FY2014 and FY2015.  It would also provide for a net deficit reduction of $22.5B over ten years, stemming primarily from higher user fees (airlines), increased pension and benefit expenses for federal workers, and a 2Y extension of Medicare payment cuts.  


Budget Deal: Pigs Fly In Washington? - drakepiece1

Dollar Bearish (kinda), Consumption Bullish (maybe):

In isolation, a budget agreement calling for higher spending is dollar bearish on the margin.  However, to the extent that increased fiscal policy clarity pulls forward the tapering timeline, a multi-year accord could be viewed as a positive for the currency. 


On balance, and if the Fed is, indeed, data dependent, the investment conclusion is somewhat equivocal.  We’ll continue to let the market act as arbiter, using price as our signal.  Investors have been net sellers of dollars for 5 consecutive weeks and, as it stands currently, the dollar remains broken on both TREND and TAIL durations with the next level of TRADE support at $79.67 on the DXY.   


In the intermediate term, higher federal spending offers some potential upside to consumption growth.  As we’ve highlighted (HERE), government sourced income has been a discrete drag on aggregate personal and disposable income growth as sequestration/furloughs and ongoing federal employment loss have driven negative income growth for ~17% of the national workforce. 


If the decline in federal employment bases and government salary and wage growth goes positive (against easy compares) in 2014, consumption growth could see some moderate upside. 


Budget Deal: Pigs Fly In Washington? - Government Drag


Christian B. Drake



Want to join the Hedgeye Revolution? Click here to subscribe today.

Budget Deal: Pigs Fly In Washington? - cartoon


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more