MARCH MAYHEM: Congress has until next Thursday, February 8 to avoid another lapse in funding and avert a government shutdown and finding the votes in the House will again not be an easy task for Speaker Paul Ryan and his whip team. Conservatives and defense hawks are threatening to oppose the fifth short-term funding bill and House Democrats have refused to back stopgap measures without securing relief for DACA leaving Speaker Paul Ryan scrambling to corral Republicans in what may be a party-line vote in that Chamber. The ultra-conservative House Freedom Caucus is withholding their support unless – wait for it – Ryan promises to support their version of an immigration plan in the House. And, they may be joined in their opposition by defense hawks who are incensed at yet another short-term fix and funding uncertainty at the Pentagon now over four months into the fiscal year. Republican leaders are working on a six-week stopgap plan coming out of their retreat in West Virginia with the House voting as early as next Tuesday to keep the government funded through March 22. With some Democrats still bruised from a misplayed hand during the last standoff, we think they deliver the votes for the stopgap next week to Senate Majority Mitch McConnell and Ryan finds a way to appease his restive caucus in the House resulting in a March standoff: potentially combining the debt limit, budget/spending caps and hurricane relief (as well as a number of must-pass items) into one massive bill.
NO QUICK FIX FOR IMMIGRATION: President Trump’s four-pronged plan was dead on delivery at Tuesday’s State of the Union given the reaction from Democrats not to mention conservative opposition to a path to citizenship. In fact, both sides may be further apart now than ever before. Hope on a compromise currently rests with a slimmed-down, two-pronged version floated by Senator Rob Portman (R-OH) giving ‘dreamers’ legal status (stopping short of a path to citizenship) and adding in money for border security. But the idea is still being vetted with conservative House members who want to pursue their own strategy. It means is that no deal is likely before the February 8 government funding deadline hits. However, we point out that Senate Majority Leader Mitch McConnell has promised to bring an immigration bill to the floor after February 8 under an open amendment process with Congress faced with a March 5 deadline for finding a way to fix DACA.
REVERSAL OF FORTUNES: With the tax billed signed into law and implementation underway, Republican donors are beginning to open their checkbooks again - bigly. Things were looking pretty grim for them on the accounts receivable side of the ledger for most of 2017 given the death of repeal and replace and the dearth of any other legislative victories. What a difference a month or two (and a tax cut) make. Coffers at both the House and Senate political arms have started to swell and just in the nick of time with 10 months to go until the midterms. Looks like they’re going to get some help as well – with control of Congress and their agenda hanging in the balance, Veep Mike Pence is about to step up his game and embark on an ambitious political and fundraising juggernaut crisscrossing the country especially in states where Trump isn’t popular.
WHAT WALL STREET IS MISSING (RIGHT NOW): It’s been 29 days since our Macro team presented their Quarterly Macro Themes and hit to the road to discuss with institutional clients around the country. Our Themes lay out the three market-moving trends we think will drive financial returns in months to come. With fresh perspective and pushback from investors, our Macro team is hosting a live video presentation tomorrow at 10:00 am ET to discuss reflation, accelerating European growth, and continued emerging market growth momentum. They will address consensus thinking on three different fronts:
- U.S. Equity Sectors and Styles: Rising Reflation Expectations and the ensuing negative bias toward yield sensitive vehicles can be seen at both the sector and style level. Any market impact of Reflation’s Rollover II looks to be an afterthought.
- EM Assets: Global growth accelerating and a declining dollar created a very positive backdrop for emerging market capital flows. Emerging market economies have been in a Goldilocks growth regime (QUAD 1) for six consecutive quarters. Investors may be “discounting” just how positive this environment was in hindsight.
- Europe: Continued economic growth in Europe is one of the most widely noted macro themes. EURUSD momentum continues, but after a very favorable run of over a year, investor sentiment may be at its most bullish point on the currency. We’ll outline why on the call, and also highlight the asymmetric set-up in long-term equity volatility expectations.
We hope you’ll join our Macro team for this presentation. We welcome the feedback and dialogue
LEGAL CATALYSTS: FEDERAL COURT CLEARS PHH OF KICKBACK LIABILITY (PHH): As we anticipated, a federal appeals court lifted a $109 million penalty against PHH Corp. in a high profile constitutional case. Read Paul Glenchur's piece here.
RIDING OPEC’s COATTAILS: US Production Rises Past 10 M B/D in November: Our Senior Energy Analyst Joe McMonigle writes U.S. crude production surpasses Saudi Arabia production last year. Also US weekly crude stocks increased last week by 7 million barrels. Read his piece here.
Watch a replay of this special Real Conversation with Hedgeye CEO Keith McCullough and legendary investor Mario Gabelli. Mario discusses his three top stock ideas for 2018 with Hedgeye CEO Keith McCullough. Following this deep-dive discussion, Keith and Mario take viewer questions. Click here to view.
IT'S A MAD, MAD, MAD, MAD WORLD: Join us next Friday, February 9 at 10 am for a geopolitical call with Gen Dan Christman. Find the details here.
ROCK AND A HARD PLACE l CERN CONTRACT WITH VA CAUGHT BETWEEN INTEROPERABILITY AND PROCUREMENT REALITIES: Our Health Care Policy Analyst Emily Evans writes that interoperability demands from VA are nearly impossible to execute; scaled back contract more attractive protest target. Read her piece here.
