JT TAYLOR: CAPITAL BRIEF - JT   Potomac banner 2  1

WAITING ON WATT: The bipartisan effort to break up mortgage giants Fannie Mae and Freddie Mac into smaller companies has spread from the Senate to the House. House Financial Services Chair Jeb Hensarling (R-TX) has started a bipartisan working group with Representatives Sean Duffy (R-WI) and Emanuel Cleaver (D-MO). They will begin by looking to separate Fannie and Freddie by type of loan (ex. single family vs multi-family), but could go further; some Republicans would like to see them privatized. In order for Congress to make changes to the government duopoly, they need the support of the Federal Housing Finance Agency Director, Mel Watt. And, yesterday Watt told Congress to get moving with an overhaul - after nine years the time is now, but you can bet that the $5.1 Billion in recent receipts (and $108.2 Billion since taking them over in 2008) will cause some in the cash-strapped Capitol to blink.

WITH A GRAIN OF SALT: So far, the most controversial deduction laid out in the tax framework is the possibility of eliminating, reducing or capping the state and local tax (SALT) deduction. Eliminating the SALT deduction would generate an estimated $1.3 trillion in revenue helping to offset the cost of tax cuts. The deduction was granted so one wouldn’t - essentially - be double taxed for where they live. Areas with the highest SALT rates benefit from the deduction the most – and will also be the ones fighting to keep it. However, these high-paying counties are largely Democratic, and Republicans need a way to pay for the cuts. The lobbying efforts out of New York, California, New Jersey etc. may not be as impactful as those states are used to given that they’re swimming in a sea of red.

BUREAU BATTLE: The Senate Banking Committee’s hearing featuring testimony from Wells Fargo CEO Tim Sloan turned into a battle over the CFPB’s arbitration rule. Republican Senators were expected to vote to overturn the rule this week. Democrats, who earnestly support the arbitration rule, have used the Wells Fargo and Equifax scandals as an opening to push back. While Senators Chris Van Hollen  (D-MD), Sherrod Brown (D-OH), and Jon Tester (D-MT) grilled Sloan over the company's use of arbitration in the case of fraudulent accounts, Republican Senator Tom Cotton (R-AR) agreed with Sloan on the importance of arbitration clauses to customers - insinuating the CFPB's rule must go.

COMPROMISING YOUR HEALTH: Senate Health, Education, Labor, and Pensions Committee (HELP) Chair Lamar Alexander (R-TN) and Senator Patty Murray (D-WA) are hoping to introduce a bipartisan bill to stabilize insurance markets this week. Yesterday, Alexander and other HELP Committee Republicans agreed to two years of Obamacare cost-sharing reduction subsidies for insurers - signaling they are close to an agreement. If they can work this bill out of committee, it will still have to pass the Senate floor before going to the House and they need to get the support of leadership who is still reeling from their Obamacare failure.

IRAN APPROACHES AGAIN: Dating back to campaign 2016, President Trump has been saying that Iran’s behavior is unacceptable. However, key Administration members such as Defense Secretary Jim Mattis are now stressing to Congress the importance of staying in the deal. Trump’s deadline to acknowledge if Iran is in compliance is fast approaching (October 15), but even if he tries to dismantle the deal, it will require Congressional approval. Some Republicans who were vehemently against the deal two years ago are even wary of pulling out so abruptly. The Senate can only afford two defectors and with encouragement from Mattis and Senators Jeff Flake (R-AZ), Susan Collins (R-ME), Rand Paul (R-KY) and John McCain (R-AZ) still weighing the possibility exiting the deal is far from a sure vote.

GENERAL DAN CHRISTMAN - NORTH KOREA: "WHERE DOES THIS ALL END?": Our Senior Advisor General Dan Christman wrote that given the hyperbolic rhetoric from both sides of the current North Korean dust-up, it’s only sensible to ask this same question: “Where, and how, does the North Korean crisis end?” Read his full piece to find out here.

CALL REPLAY - DAVID HOPPE: NEXT STEPS FOR TAX REFORM: We held a call with David Hoppe, former chief of staff to Speaker of the House Paul Ryan and Macro Policy analyst JT Taylor as they covered the road ahead for the Big Six’s tax reform plan. Dive into the details on the replay 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.