GROUNDHOG DAY, THE SEQUEL: Where’s Bill Murray when you need him? Looks like Washington is reverting to the same irresponsible refrain we’ve seen play out for years now. Speaker Paul Ryan has moved to the backup plan of passing a clean CR extension to fund the government, CHIP, and extend FISA temporarily. The decision came amid opposition to a bill that would fund the Pentagon for a year and send $81 Billion dollars in disaster relief. House Republicans still plan to vote on the aid package, but separate from the funding bill. The Freedom Caucus, defense hawks, and Democrats are opposed to the January 19 extension and Ryan is going to have to make a deal with one of them. We don’t see a shutdown hours after passing landmark tax legislation and hours before Christmas weekend is slated to begin, but this will ensure more drama in January with a laundry list of must-pass legislation to negotiate and Capitol Hill as polarized as ever.
LARGEST CUT IN 100 YEARS...: The House’s final vote sent the Tax Cuts and Jobs Act (official title is too long) to the president and with it one of the largest tax cuts since 1918 according to the Committee for a Responsible Budget. The package is meant to provide an economic stimulus for the economy as well as tax relief for all Americans. Trump predicts about $4 trillion in new investments, more jobs and wage growth. So where do Republicans go from here? They want to see the benefits before midterms, meaning they have been working around the clock to prep the transition and implementation of the new law. The majority of provisions were made effective beginning in 2018 and Republicans have already been working with the IRS and respective agencies to aid in implementation. The quick and complex nature of the process may cause confusion across the land, but Republicans say they have a plan. We think the real work is just beginning.
U.S. GROWTH (STILL) ACCELERATING:Ahead of today’s U.S. GDP Q3 report, here’s an update for Q4 from Hedgeye CEO Keith McCullough: 1) Our predictive tracking algorithm ticked up to +2.67% year-over-year growth post last week’s 68-month highs in Retail Sales and 36-month highs in Industrial Production growth 2) That 2.7% y/y forecast imputes a +3.07% q/q SAAR forecast for Q4 of 2017 (that’s the headline number Wall Street reads to you). “That’s why all you Trump lovers out there can say he’s actually telling the truth when he’s talking up the ‘3% GDP economy,’” McCullough writes. “If our nowcast model is right, the U.S. economy is going to score a hat trick of three straight quarters of headline +3% U.S. GDP.” Love him or hate him, the U.S. economy continues to grow stronger under President Trump.
STRONGER SANCTIONS: The U.S. is stepping up global pressure on North Korea and using China to do it. Secretary of State Rex Tillerson along with UN Ambassador Nikki Haley are working to negotiate a security resolution pushing China to further restrict financing to the regime. The stronger sanctions would indirectly challenge Chinese companies and banks who do business in North Korea. This comes at a time when tensions are high between President Xi and Trump, after Trump accused the country of economic aggression and promised to curb their unfair economic and trade policies.
CALL REPLAY: TECH & TAXES | WINNERS & (SORT OF) LOSERS: We teamed up with Hedgeye’s Ami Joseph for the latest implications of the tax reform proposal on the tech sector. Get the replay here.
CALL REPLAY: THE UPSIDE CASE FOR TXT: Our Senior Defense Policy Analyst LtGen Emo Gardner joined industrial analyst Jay Van Sciver in his long thesis call on TXT. Get the replay here.
CALL REPLAY: BRINGING HOME THE BACON: REPATRIATION DEEP-DIVE: We teamed up with Hedgeye's Macro team to discuss repatriation and international taxation. Get the replay here.
CALL REPLAY | TAX REFORM AND RETAIL: We joined Hedgeye’s Retail team featuring Jeremy McLean and Daniel Biolsi on tax reform and its impact on the retail ecosystem. Get the replay here.
GOVERNMENT REVIEW OF DISNEY-FOX DEAL (DIS, FOXA, NFLX, AMZN, GOOGL, T, TWX): Our Senior Telecom Analyst Paul Glenchur writes we expect ultimate approval by either the DOJ or FTC despite asset divestiture pressures. Read the full piece here.
ENERGY WINS BIG IN TAX REFORM BUT CHALLENGES REMAIN FOR CLEAN ENERGY: Our Senior Energy Analyst Joe McMonigle writes winners include oil and gas, utilities and MLPs. Potential losers are wind and solar on BEAT provision. Read the full piece here.
