TO THE RIGHT, TO THE RIGHT: With yesterday's announcement of Justice Anthony Kennedy's retirement from the Supreme Court, Trump has a once in a lifetime chance to reshape SCOTUS for a generation. Couple that with the continued Trump/McConnell effort to nominate and confirm dozens of lower court judges and you are looking at a sea change in the direction of our judicial system that may end up being Trump's greatest legacy. Majority Leader McConnell has already made it clear that the Senate will vote on Trump's nominee this fall with the expectation that the new Justice will be seated when SCOTUS resumes in October. We're bracing for a bruising battle royale on and off Capitol Hill (believe it or not, ads in a number of key states will air today) with the focus once again on Democratic senators in red states (remember Sens Heidi Heitkamp, Joe Manchin and Joe Donnelly all voted for Justice Neil Gorsuch), moderate Republicans Susan Collins and Lisa Murkowski, and the ailing maverick John McCain. Plenty of wildcards to consider - all brought to you just before the midterms...Trump's list of 25:
- Amy Coney Barrett of Indiana, U.S. Court of Appeals for the 7th Circuit
- Keith Blackwell of Georgia, Supreme Court of Georgia
- Charles Canady of Florida, Supreme Court of Florida
- Steven Colloton of Iowa, U.S. Court of Appeals for the 8th Circuit
- Allison Eid of Colorado, U.S. Court of Appeals for the 10th Circuit
- Britt Grant of Georgia, Supreme Court of Georgia
- Raymond Gruender of Missouri, U.S. Court of Appeals for the 8th Circuit
- Thomas Hardiman of Pennsylvania, U.S. Court of Appeals for the 3rd Circuit
- Brett Kavanaugh of Maryland, U.S. Court of Appeals for the District of Columbia Circuit
- Raymond Kethledge of Michigan, U.S. Court of Appeals for the 6th Circuit
- Joan Larsen of Michigan, U.S. Court of Appeals for the 6th Circuit
- Mike Lee of Utah, United States Senator
- Thomas Lee of Utah, Supreme Court of Utah
- Edward Mansfield of Iowa, Supreme Court of Iowa
- Federico Moreno of Florida, U.S. District Court for the Southern District of Florida
- Kevin Newsom of Alabama, U.S. Court of Appeals for the 11th Circuit
- William Pryor of Alabama, U.S. Court of Appeals for the 11th Circuit
- Margaret Ryan of Virginia, U.S. Court of Appeals for the Armed Forces
- David Stras of Minnesota, U.S. Court of Appeals for the 8th Circuit
- Diane Sykes of Wisconsin, U.S. Court of Appeals for the 7th Circuit
- Amul Thapar of Kentucky, U.S. Court of Appeals for the 6th Circuit
- Timothy Tymkovich of Colorado, U.S. Court of Appeals for the 10th Circuit
- Robert Young of Michigan, Supreme Court of Michigan (Ret.)
- Don Willett of Texas, Supreme Court of Texas
- Patrick Wyrick of Oklahoma, Supreme Court of Oklahoma
LABOR PAINS: the Supreme Court dealt public employee labor unions a major blow in one of their final rulings this season. By a vote of 5-4 SCOTUS overturned the 1977 Abood v. Detroit Board of Election ruling allowing states and public-sector unions to require the collection of fees from non-union public sector employees. With potential political implications for the upcoming midterms and future elections, the ruling could accelerate the downsizing of a major influential and organizational force in Democratic politics.
IMMIGRATION STAGNATION: An immigration bill backed by House Republican moderates that House Speaker Paul Ryan labeled "a great consensus bill" was resoundingly crushed 121-301 in a floor vote yesterday. The House is now likely to try to pass a narrow bill that would curb the Administration's migrant separation policy and allow families to be detained together when the adults are taken into custody for illegally crossing the border.
HEDGEYE'S Q3 MACRO THEMES: 2018 marks the 10th consecutive year in which we have been publishing our quarterly “Macro Themes.” These three, top-down market catalysts are likely to drive investment returns. Most investors are not positioned for them. This quarter’s themes are as follows:
1. #Strong Dollar: A U.S. Dollar Index +7% off its YTD lows has already inflicted some major pain in consensus macro views that were observably long of things like commodities and Emerging Market financial assets heading into Q2. Will it continue? In our view, the probable answer is “yes.” We will dig into the wide-reaching implications.
2. #HaveRatesPeaked? With a peak in domestic headline inflation pending in Q3, 4 hikes out of the FOMC now priced in for 2018, DM sovereign yields retreating alongside the more discrete manifestation of #GlobalDivergences (i.e. EU, EM, China slowing) and 10Y Yields, Oil and Ag all signaling lower-highs, the consensus “bond bear market” thesis is likely to find itself under increasing scrutiny as we progress throughout 2H18.
3. #ShortEM: The first half of 2018 saw a tremendous pickup in cross-asset volatility – albeit from at/near all-time lows – throughout the emerging market investment universe. We don’t believe our bearish bias on EM is fully priced in. As such, we will anchor on the findings of our proprietary, repeatable and robust processes to detail to investors why EM assets are likely to continue to be a drag on performance with respect to the intermediate term.
STICKING WITH CFIUS (FOR NOW): The Trump Administration appears to be punting on their widely reported (and confusing) move to impose investment restrictions and export controls on the Chinese tech sector - instead opting to use the interagency CFIUS review process. The House and Senate are in the final stages of merging their respective CFIUS bills (both garnering bipartisan support) with an eye on final passage before the August recess.
AND IRAN SO FAR AWAY: Reimposed U.S. nuclear sanctions will remove nearly one million barrels per day (b/d) that were added by Iran after the nuclear deal was implemented. Senior Energy Analyst Joe McMonigle expects this number will be contributed from zero oil purchases from companies in Europe, Japan and South Korea. China and India are wildcards but several Indian refiners have said they will not buy Iran oil after U.S. sanctions. McMonigle expects China to continue buying oil from Iran but perhaps at pre-Iran deal levels and thinks it's a mistake to assume China will buy up additional Iranian oil lost to US sanctions. China wants to diversify its oil imports and there are also political considerations. China will want to express independence from the U.S. policy but it will not want to poke Trump in the eye either. Read his full note here.
TAX REFORM REDUX?: Four tax bills, including an extension package for tax cuts that are currently slated to end in 2025, are scheduled for House action in the fall before this year's midterm elections, according to House Ways and Means Committee Chairman Kevin Brady (R-TX). Brady said House tax writers will come up with the legislation over the summer, though the measures might die in the Senate, but not on the campaign trail this fall.
GENERAL DAN CHRISTMAN | NORTH KOREA: SO, WHAT REALLY HAPPENED IN SINGAPORE? Read General Christman's latest missive here.