JT TAYLOR: CAPITAL BRIEF - JT   Potomac banner 2


  • 8 days - until Congress must address year-end expirations (tax extenders, Medicare extenders, FISA)
  • 8 days - until Republican leadership’s self-imposed tax timeline
  • 8 days - until the new CR to fund the government and NFIP expire
  • Looming: DACA, CHIP, and the debt ceiling (December 8 expiration, extended to March with extraordinary measures)

FIRST AND GOAL: The House and Senate have been working in Conference Committee since December 6 to close the gaps between their two tax reform bills. They have reached an agreement and are shoring up votes with Senators and Representatives over the next two days. They are not expected to release the final version of the bill until this Friday after the market closes and plan to vote early next week. Their goal is to deliver a bill to 1600 Pennsylvania Avenue midweek.

What we know so far:

  • Estate tax – exemption doubled to 11MM for individuals, 22MM for married couples, no repeal
  • Corporate rate – 21 percent, effective January 1, 2018
  • Top individual rate – 37 percent
  • SALT – $10,000 deduction, mix of property tax plus either income or sales tax
  • Mortgage indebtedness deduction cap – $750,000
  • Obamacare individual mandate – reduced to zero
  • Corporate AMT – repealed
  • Individual AMT – exemption raised to $500,000 for individual, $1MM for families
  • Pass-through deduction – 20 percent
  • Interest deduction limitation basis – EBITDA for the first five years, EBIT thereafter
  • Deduction for unreimbursed medical expenses – retained, with 7.5 percent floor for two years
  • FIFO - Senate language (House provision is out)

To dig deeper and hear more of the details and other provisions expected in the report, catch the replay of our roundtable with David Hoppe, Jeff Shapiro, JT Taylor, and Emily Evans. LISTEN HERE.

CHIPPING AWAY: States are running out of funding for the CHIP, which expired at the end of September and has yet to be renewed by Congress. While the program has bipartisan support, Congress is distracted with just a few things these days while searching for a solution to fund it. Governors are warning Congress of the major costs of running out of money and are asking them to take action before the end of the year. House Ways and Means Chair Kevin Brady (R-TX) is putting together a year-end health bill, but it is almost entirely focused on delaying Obamacare taxes - medical devices for five years, health insurance for two years, and the "Cadillac tax" on high-cost health plans for one year.

CHIP Spending by State according to The Kaiser Family Foundation


REFLATION’S ROLLOVER: This was probably the capstone for the recent Reflation Trade (the three-month macro move off the August lows for inflation) as the headline Producer Price Index accelerated for a fifth consecutive month. “The index breached the three-handle to the upside and marked the fastest pace of wholesale price growth since January 2012,” writes Hedgeye CEO Keith McCullough. Comps get progressively more difficult from here. (Don’t forget that this was November data and December has already seen a meaningful correction in commodity prices.) In other words, like us, Mr. Market is already predicting Reflation’s Rollover. Add in 3Q’s +3.3% headline quarter-over-quarter GDP and the Fed bit on this hook, line, and sinker as the green light to be hawkish. Then, in Q1 of 2018, they’ll have to tone back to on-the-margin-dovish on Reflation’s Next Rollover against very difficult Q1 2017 inflation compares.


I’LL TAKE THAT AS A NO: As the Senate Banking Committee prepares to take up the nomination of former Rep. Scott Garrett (R-NJ) next Tuesday, Senator Mike Rounds (R-SD) has all but said that he will vote against him, “I’m looking for reformers, not abolitionists.” It would only take one vote in Committee to prevent the nomination from moving forward. Garrett is highly controversial among Congressional and business leaders alike given his stance that the Ex-Im bank should not exist. The National Associations of Manufacturers has been the most vocal opponent whose members benefit from financing secured by the Ex-Im bank. Even if Garrett moves to the full floor, he is expected to be met with opposition with at least three Republican Senators raising concerns over him.

LUCKY 13: The House Financial Services Committee moved 13 bills to the floor, completing a very busy year of regulatory rollbacks. Of the bills moving forward - H.R 435 will require consumer credit reports to include an individual’s payment history, H.R. 4464 will repeal the National Credit Union Administration’s Risk-Based Capital final rule, H.R. 4529 will allow smaller reporting companies to register primary securities offerings exceeding one-third of the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant, and H.R. 4560 will extend the GSE Jumpstart Act prohibiting the sale of Treasury-owned senior preferred shares in government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac without congressional approval.



CALL INVITE | TAX REFORM AND RETAIL: We're joining Hedgeye’s Retail team featuring Brian McGough and Jeremy McLean on tax reform and its impact on the retail ecosystem tomorrow, Friday December 15, at 2:00 PM ET. Get the event details here.

FCC NET NEUTRALITY REPEAL SET FOR TODAY (CMCSA, CHTR, T, VZ, ATUS, TMUS, NFLX, AMZN, FB, GOOGL): Our Senior Telecom Analyst Paul Glenchur writes Prepped for harsh political backlash, the FCC plans to repeal common carrier regulation of broadband today. Read the full piece here.

NEW FERC CHIEF DELAYS CONSIDERATION OF DOE PROPOSAL TO AID COAL & NUCLEAR: Our Senior Energy Analyst Joe McMonigle writes that it is likely to take longer than a 30-day extension to get consensus among commissioners so we expect a final decision later next Spring. Read the full piece here.

HCA, HOLX, MD, AMN, ATHN | HEALTH CARE JOB OPENINGS -2.7% IN OCTOBER: Hedgeye’s Health team with Policy Analyst Emily Evans remain short a number of names in the Hedgeye Health Care Position Monitor related to their #ACATaper thesis. Read the full piece here.