MEANS TO AN END: The House has been waiting to vote on Budget Chair Diane Black’s (R-TN) FY18 budget until it secured the votes from the warring ideological wings of the Republican Party. With the release of the tax plan, the Freedom Caucus announced they will support the budget bill - they were waiting to see what the reconciliation language would outline this time around given that they are still reeling from the FY17 shell budget. We are also hearing that deficit hawks, who typically would not vote for this budget without major spending cuts - will - because they see it as a means to an end - tax reform. The House will vote sometime next week with the Senate expected to vote the following week, ambitiously putting them into conference in early October.
TALKING TAXES: NEC Director Gary Cohn and Treasury Secretary Steve Mnuchin spent yesterday outlining key provisions of the tax plan with Cohn reiterating that the cuts will focus on the middle class. They intend to close loopholes for the wealthy, such as carried interest, but that provision isn’t specifically in the framework, though it’s likely to be pushed in committees. Mnuchin’s focus on economic impact - estimating the tax plan will reduce the deficit by $1 trillion from long-term economic growth - may be an early effort to disarm budget hawks. We held a call yesterday with David Hoppe, former chief of staff to Speaker of the House Paul Ryan, on the details of the tax framework and where he expects Congress to take it. Listen to the replay here.
FAA TAKES FLIGHT: The House passed the Federal Aviation Administration (FAA) reauthorization - but tacked on a number of immaterial measures - flood insurance changes, tax breaks for hurricane relief, and health care provisions. A group of bipartisan Senators - including those in flood-prone states - came out in strong opposition to the bill forcing the Senate to rework it. If FAA would reach expiration Saturday all non-essential employees would be sent home that means thousands of airway employees such as those that check the mechanics of each plane before flights. The Senate, knowing they couldn’t let that happen, unanimously passed a six-month extension after stripping out most of the tack ons. The House was forced to vote again and the bill is now on its way to President Trump’s desk - just in the nick of time.
JONES ACT: President Trump granted a waiver lifting the Jones Act for ten days, allowing foreign ships to participate in the relief and recovery efforts in Puerto Rico. Puerto Rico’s plight has only worsened in the aftermath of Hurricane Maria, leaving Senator Marco Rubio (R-FL) and others pushing for the president to increase military control in the territory. The biggest issue with relief efforts is the lack of order; there are no clear processes for receiving and moving aid on the ground. While Congress is focused on the current humanitarian crisis - once the relief efforts turn to recovery efforts - expect Senators and Representatives to use this as an example for legislative reforms - permanently lifting the Jones Act, Puerto Rico statehood, and disaster response processes.
ARBITRATION MAY GET VOTE: With the anticipated Equifax hearings next week, lawmakers want to address the Consumer Financial Protection Bureau’s arbitration rule before Democrats have more leverage to block the rollback. It is rumored that the Senate plans to vote on the House passed repeal before October 4th. Three Republican Senators are still on the fence and Wells Fargo and Equifax are only abetting their equivocation.
DEPLETED: The National Flood Insurance Program (NFIP) has a balance of zero. It has completely depleted its borrowing funds paying out claims in the wake of Hurricanes Harvey and Irma. Their lack of funding and increasing needs will pressure Congress to allow the Treasury to send payments to the program helping them to pay their claims. The Federal Emergency Management Agency (FEMA), who runs the program, is at a zero borrowing limit and is working with Congress to change it. NFIP is one of the examples of how these storms will hit the Republican agenda hard - relief and recovery are expensive - and Republicans are in the middle of fighting to decrease federal spending in order to offset the decreasing revenue from tax reform.
FCC SAYS WIRELESS MARKET IS COMPETITIVE (TMUS, S, VZ, T): Our Senior Telecom Analyst Paul Glenchur writes - the FCC sets a more open tone to potential wireless deals, but clearing a T-Mobile/Sprint deal is still a close call. Read the full piece here.
EPA SIGNALS POTENTIAL CUTS IN PROPOSED BIOFUEL MANDATES: Our Senior Energy Analyst Joe McMonigle writes that reduced biofuel volumes mean lower RINS prices boosting refiners hit by costly compliance. Ethanol producers and blenders see lower profits. Read the full piece here.
BOMBARDIER DECISION PORTENDS BIG WIN FOR LMT: Our Senior Defense Analyst Emo Gardner wrote the U.S. decision to support BA with tariffs on Bombardier will result in a Canadian backlash against F/A-18E/F and restart the plan to buy 65 F-35As. Read the full piece here.
EVENT: HEDGEYE GOES TO AUSA OCTOBER 10: Hedgeye’s Senior Defense Analyst Lt. Gen Emerson “Emo” Gardner is hosting a defense day in DC followed by a reception. Join Emo in a “booth walk” of the largest land warfare exposition in North America. View over 720 of the world’s most important military hardware suppliers escorted by the man former Secretary of Defense Bob Gates called, “my go-to guy on the budget.” By invitation only.
EVENT: DEPUTY ENERGY SECRETARY AND FORMER OPEC PRESIDENT HEADLINE OCTOBER 11 HEDGEYE ENERGY CONF (NYC): Our Senior Energy Analyst Joe McMonigle is hosting a Hedgeye energy conference in New York City. Topics include regulating pipelines, grid reliability and energy infrastructure in the Trump Administration - as well as an OPEC meeting preview. Get the event details here.
