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 JT TAYLOR: CAPITAL BRIEF - JT   Potomac banner 2

 

BUDGET BLUES: We’re hearing conflicting reports on whether or not Republicans will pass a unified budget this spring. We weighed in yesterday saying that entitlement/welfare reform will likely be tossed overboard in favor of bipartisan legislation like infrastructure and that would negate the need to go through the painstaking budget exercise (to include reconciliation instructions) - made even more difficult given Senate Majority Leader Mitch McConnell’s ever-so-slim majority.  Nonetheless, current budget and spending cap talks continue to move in the right direction, but DACA is still dogging the debate with only eight days left until the current CR expires - and Congress leaves town today until next Tuesday.  Another short-term CR is in the works, but no word on whether Democrats are going to play ball.

EARLY IMPACT ON THE MID-TERMS: With the 2018 mid-term elections now less than 10 months away and Republican retirements outpacing prior cycles (29 total with Rep Daryl Issa (CA) yesterday), a new twist has emerged in North Carolina where a panel of federal judges unanimously struck down the Tar Heel state congressional map where Republicans hold 10 of the state’s 13 seats.  The districts were drawn by the Republican legislature in 2016 and the panel ruled that they violated the Constitution's equal-protection clause by explicitly drawing Congressional districts along partisan lines.  The NC Legislature now has until January 24 to redraw the map and raises the stakes in two other states – Pennsylvania and Wisconsin – with gerrymandering challenges pending over lines drawn by those Republican legislatures.

TRIMMING DODD-FRANK: Lost in the din of the immigration and spending caps debate is the prospect of moving a bipartisan effort to scale back elements of Dodd-Frank.  Championed by Senate Banking Chair Mike Crapo (ID), the legislation pares back rules for small lenders and regional banks alike.  Lawmakers are eyeing a vote in that chamber in the coming months, but the House will likely have to go back to the drawing board taking cues from Senate playbook after their attempt in 2017 to overhaul the 2010 law never stood a chance of passing the upper chamber.

GLOBAL ECONOMIC DIVERGENCES: Our macro team recently presented its Top 3 1Q18 Quarterly Themes highlighting top-down catalysts our models suggest are increasingly likely to drive investment returns. These calls generate more Institutional Investor attendance/interest than any other content we produce at the firm. The slide deck page count is approximately 100, and CEO Keith McCullough presents it live on HedgeyeTV in around 40 minutes. One of the key takeaways: while Wall Street consensus remains (overly) committed to the “globally synchronized recovery” narrative heading into 2018, our sophisticated predicting tracking algorithms are signaling the quite the opposite. That outcome should perpetuate a number of meaningful pivots in asset allocation terms throughout the investment management landscape. One country we’re increasingly concerned about is China. More to be revealed.

JT TAYLOR: CAPITAL BRIEF - chinaq118

TED TALKS TAX: Senator Ted Cruz is first out the gate with a bill aimed at changing the landmark tax legislation passed less than one month ago. Cruz’s bill will make permanent tax relief for individuals currently set to expire on December 31, 2025.  Republicans will need to make changes under the auspices of a technical corrections bill once they feel elements of their bill have gelled and they have a complete list at the ready, but Cruz’s effort won’t be getting much floor time this year and is the first salvo in the debate to ensure that both parties are locked in to extending or making individual rates permanent well before the deadline.

Programming note:  We’re out tomorrow and will be back next Tuesday.

LONG TERM PENTAGON BUDGET GROWTH TO BE STUNTED; 2018 WILL BE HIGH WATER MARK FOR DEFENSE SPENDING: Our Senior Defense Analyst Emo Gardner writes Pentagon spending will end up at ~$665B in FY18, +9% year/year and FY19 will be flat but we see real trouble beginning in FY20.  Read his note here.

2018 MARKS END OF THE IRAN DEAL AND START OF U.S. OIL SANCTIONS ON IRAN: Our Senior Energy Analyst Joe McMonigle weighs in on the increased risk in Trump denying a waiver on Iranian oil sanctions on Jan 12 or later in May.  Read his piece here.

UKRAINE: DEFENSE TO OFFENSE: Our Senior Geopolitical advisor General Dan Christman writes on recent strategic moves by the U.S. in the Ukraine.  Read his piece here.

WILL THE JUSTICE DEPARTMENT REVISIT COMCAST-NBC UNIVERSAL? (CMCSA, T, TWX): Our Senior Telecom Analyst Paul Glenchur writes that despite political pressure to extend DOJ merger conditions, Comcast should avoid a decree modification or a breakup effort. Read his piece here.