LEGAL CATALYST LAUNCH: In Washington, the spotlight shines mainly on Congress and the White House, but there is a third branch of government shaping the laws and rules critical to particular companies and industry sectors. Hedgeye Potomac will expand coverage to the judicial branch with the launch of our Legal Catalyst Research this week. Our Senior Telecom Analyst Paul Glenchur will be following the most impactful court cases, their status, and their impacts on the market. Stay tuned as we announce our new vertical for in-depth coverage of these timely and compelling issues.
THE FIRST HICCUP: The FY18 budget with reconciliation language unlocks the path forward for tax reform meaning any sort of delay in a budget vote could push a tax overhaul to 2018. To stay on track with their ambitious timeline, the Senate needs to vote on their FY18 budget this week. But, the first hiccup comes as Senator Thad Cochran (R-MS) remains out recovering following surgery, despite being expected back in Senate to vote. Senate Majority Leader Mitch McConnell says they will move full steam ahead with a budget vote this week - with incredibly thin margins. McConnell can now only lose one vote and despite his weekend with the president, Senator Rand Paul (R-KY) is expected to vote against it. Others to watch include Senators John McCain (R-AZ), Bob Corker (R-TN), and Susan Collins (R-ME) all of whom feel no obligation to vote with their party’s leaders, but are likely to vote yes as a means to tax reform.
DOESN’T FAZE VOTERS: Republicans are desperate for tax reform this year, mostly because of the rare opportunity they have for real change, but also because they need something to bring back to their base before 2018 elections. Members of Congress have already talked about passing a simple tax cut if they cannot get an overhaul together. They would chalk that up to a huge win and revisit reform in the latter half of next year. House Republicans are also weighing a “phase in” for reforms. They will pass the legislation in 2017, but with extended time frames to help offset costs. Rate cuts like the 20% corporate wouldn’t take effect for three to five years. Unlikely though, if Speaker Paul Ryan (R-WI) continues to push economic growth as soon as possible.
NEW DEAL OR NO DEAL: The fourth round of NAFTA talks was supposed to settle some of the most hot-button issues between the countries, so far it has not gone well. Negotiators are scheduled to give an update today, but may extend the meetings even further. President Trump is adamant on fixing the U.S. trade deficit and for that reason is not even willing to play ball on many issues. No progress has been made on seasonal produce price gouging, Canadian dairy and poultry, or rules of origin for the auto industry. While many speculate that this means Trump will withdraw, he prides himself on having an array of negotiating tactics - this likely one - as pulling out would alienate the Republicans he needs to vote on tax reform.
TALKING TRADE WITH TOKYO: Japanese trade officials are in the U.S. to talk bilateral trade with the Administration after President Trump pulled out of the Trans-Pacific Partnership (TPP). TPP took years to curate - much of the work done by these same trade leaders in Japan. While the Japanese officials are pro-trade they are wary about the shape of bilateral deals alienating parts of Asia. As they met with Vice President Mike Pence it became clear that they are open for negotiations, but their trust in American diplomacy has diminished.
TRUMP DECERTIFIES “ONE-SIDED” IRAN DEAL. HERE’S WHAT INVESTORS NEED TO KNOW: Our Senior Energy Analyst Joe McMonigle writes Trump warns if negotiations don’t address “serious flaws” then “the agreement will be terminated.” We expect oil sanctions in early 2018. Read the full piece here. In addition, here is a replay of our flash call from last week.
CALL REPLAY | CANARY IN A COAL MINE | 4Q17 HEALTH CARE THEMES PRESENTATION: Our Senior Health Analyst Emily Evans invites you to watch the replay here.
DEFENSE INDUSTRY LOOKING AT MORE $ FROM NEWLY FOCUSED ARMY: Our Senior Defense Analyst Emo Gardner writes that defense companies, large and small, are zeroing in on the Army's capability to fight a more sophisticated enemy. Read the full piece here.
AT&T/TIME WARNER ON TRACK (T, TWX): Our Senior Telecom Analyst Paul Glenchur writes that the deal seems on track despite new criticism from lawmakers. Attacks on the new antitrust chief appear more desperate than constructive. Read the full piece here.
