The finest steel has to go through the hottest fire.
-Richard Nixon
PREEXISTING PROBLEMS: When both parties are finished vying for credit for a $1.1 trillion bipartisan spending compromise (scheduled for a vote between 1:30 and 4:30 today), Republican leadership will turn their full focus towards finding that perfect pitch while amending the health care bill to bring back moderates while preserving the delicate balance with conservatives. The new discussions focus solely around preexisting conditions which the Meadows-MacArthur amendment allows states to opt out of - with President Trump reengaging in the arm-twisting and throwing a lifeline to moderates by “guaranteeing” coverage. Republicans have proposed to create high risk pools where states would absorb some of the costs to care for these people, but that hasn’t been enough to sway moderates into backing the plan. We believe there are 20 solid “no” votes at the moment from Republicans (on the low end of the mainstream media range) and, with 22 members still undecided, House leadership can only stand to lose two of the undecideds or face another soul crushing health care loss.
PLAYING DEFENSE:Trump’s executive order calling on the Department of Interior to write a plan for offshore drilling rights sales and to consider areas currently off-limits to drilling, will now pit Interior against the Pentagon. The Pentagon wants to continue the ban on offshore drilling in the eastern part of the Gulf of Mexico as the military uses the area for training related exercises, and requires a continuation of Congress’s ban on drilling. The oil industry has been gunning for the eastern Gulf as they believe it will create thousands of new jobs and billions of dollars in new investment. FL Senator Bill Nelson is siding with the Pentagon brass by proposing legislation that extends the drilling ban through 2027.
OUT OF OF GAS:Since infrastructure was not included in President Trump’s tax proposal, he is looking for ways to move his plan forward. Trump indicated that he is open to raising the federal gas tax to fund infrastructure improvements across the country. This will pit him against Speaker Paul Ryan and Way and Means Chair Kevin Brady as well as dozens of other Republicans who have opposed a higher levy for years. While the tax may have the backing of Democrats and industry groups, it’s Trump’s core supporters in rural areas who will be impacted the most.
DID U.S. ECONOMY JUST COLLAPSE? "There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," wrote Hedgeye CEO Keith McCullough after last week’s first quarter GDP report. Case in point, here’s the takeaway from mainstream media: US GDP “collapses” to 0.7% quarter-over-quarter, “the lowest number in three years with the worst personal spending since 2009.” These quarter-over-quarter annualized numbers are useless. The year-over-year growth figure shows the big picture trend. On that measure, US GDP decelerated modestly from 2% year-over-year growth to +1.9% (versus our +2.1% forecast). Consumption only slowed from +3.1% year-over-year in Q416 to +2.8%. “It's the second quarter now obviously and we always had Q1 as our lowest quarterly forecast of 2017,” McCullough wrote. “The second, third and fourth quarter are set up to accelerate further.” Stick with U.S. growth accelerating assets like Technology (XLK) and Consumer Discretionary (XLY).
AU REVOIR: Despite support from some of his top advisors and many oil and gas industry leaders wanting to remain, the White House is leaning towards pulling out of the Paris Climate Agreement. The Administration is worried that if they don’t withdraw from it, environmentalists will have a legal argument against Trump repealing the Clean Power Plan, which has been one of his major deregulatory goals. While it is hard to determine who is leading the power struggle in Trump’s orbit, this is a victory for Steve Bannon who had been keeping a low profile for the last few weeks.
FEDERAL COURTS GRAB NET NEUTRALITY SPOTLIGHT: Our Senior Telecom and Media Policy Analyst Paul Glenchur writes that it's not a slam dunk, but we think folks underestimate the prospect for Supreme Court action in the net neutrality case. You can read the full piece here.
