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Comcast & AT&T: Is Congress Setting Up a $60 Billion Opportunity?

 

As soon as tomorrow, Congress may vote to open up a brand new market for cable and telecom providers that’s currently worth $60 billion in revenue. The vote is on rolling back rules imposed by the Obama administration’s FCC.

 

“The Senate passed something on it last week. The House is scheduled to vote on these rules tomorrow. We believe that President Trump will sign this, if it comes to him, by the end of the week,” says Hedgeye Telecom & Media Policy analyst Paul Glenchur.

 

Once these rules are off the books, companies like Comcast (CMCSA), Charter Communications (CHTR), Verizon (VZ) and AT&T (T) will be able to earn digital advertising dollars. This realm has been dominated by the likes of Facebook (FB) and Google (GOOG), which have upwards of 60% of the market, Glenchur said on The Macro Show this morning.

 

That may change. And fast. According to Glenchur:

 

“It’s a $60 billion plus market, so there’s a lot of revenue growth still to come for broadband providers,” Glenchur says. “There’s a good growth trajectory if they can just be freed of the regulatory problems that they’ve been dealing with over the last year.”

 

We’re watching this one closely.


Forget Health Care, Trump is Winning on Energy & Doing it Without Congress

Takeaway: KXL & DAPL Pipelines Approved; Up Next: Rollback Obama Carbon Regs Tuesday

Editor's Note: Below is an excerpt from an institutional reasearch note written by Hedgeye Senior Energy Policy analyst Joe McMonigle on Friday, March 24th. Institutional investors interested in access email sales@hedgeye.com

 

Forget Health Care, Trump is Winning on Energy & Doing it Without Congress - trump white house

 

While the media and pundits focus on health care, President Trump is winning on his accomplishing his energy agenda and he is doing it without any action by Congress.

 

Less than a week after his inauguration day, Trump signed executive orders directing federal agencies to take action to approve the Keystone XL and the Dakota Access pipelines. A few weeks later, the Army Corps of Engineers issued its approval of an easement for the Dakota Access pipeline prompting federal courts to dismiss litigation by pipeline opponents.

 

On Friday, Trump received the State Department recommendation to issue the Presidential Permit for the Keystone Pipeline and signed the permit with the CEO of TransCanada in the oval office.

Up next is the roll back of the Obama carbon regulations

 

We expect the President to sign an executive order on Tuesday that directs EPA to take action to reverse the Obama Clean Power Plan.  The move will likely require EPA to start a formal rulemaking process and develop an alternative less-harsh approach.

 

The executive order signals the end of the Obama-initiated policy to decarbonize the US economy. EPA had only started with the power sector but had plans to move on with carbon regulations for other sectors, including refining, petrochemical, automotive, airlines and others.

 

Since President Obama established these policies via executive orders and agency rulemaking, the policies are easily reversed by President Trump through the same executive branch action.

 

So while Obamacare required Congressional action to repeal it, the Obama climate policies are being rolled back by President Trump and he is winning.

 


Healthcare Bill: Failure Isn't an Option, GOP Will Find the Votes

Takeaway: We think Trump, Ryan and McCarthy will find the votes to get them over the finish line

Healthcare Bill: Failure Isn't an Option, GOP Will Find the Votes - Obamacare cartoon

 

PENNSYLVANIA AVE STAREDOWN: Leadership's idea of a repeal and replace bill on the 7th anniversary of Obamacare wasn’t the best hatched plan as it boxed them into a timeline that wasn’t doable given the amount of work that needed to be done to the bill.

 

A vote on the AHCA was originally scheduled for 7 PM last night and our latest information pegs the vote sometime between 2-4:00 pm today. The House approved a procedural maneuver last night known as “Martial Law” that grants them same day voting authority to repeal the ACA.

 

Notwithstanding the delay, Freedom Caucus Chairman Mark Meadows and his colleagues appear to be holding all the cards (and the Republican party hostage) as 30 members are still undecided - but there has been a shift from “no” to “undecided” by some members over the past 12 hours. This comes after OMB Director Mick Mulvaney (and co-founder of the Freedom Caucus) issued a threat from President Trump that they either pass the AHCA or he will leave Obamacare in place.

 

Even the master negotiator is fed up with negotiating and has found his foil in the Freedom Caucus.

 

Based on Meadows’ recent statement and given the framework under which he is operating, there needs to be a safety net for the vulnerable populations while lowering premiums at the same time -- a significant move in the right direction and certainly the language moderate Republicans need to hear to stanch the hemorrhaging from that wing of the conference.

 

In a last ditch effort to appeal to moderates, House leadership added a six-year delay in repealing a 0.9 percent additional Medicare tax on high-income Americans who earn above $200,000.  Meadows is the man to watch over the next five or six hours.  If he moves in favor of the bill, expect others to follow - if he announces his opposition, then it will be a free-for-all.

 

The mandatory meeting of the entire Republican conference last night served as a clarion call to all factions of the party to rally around the first major legislative jewel in the Republican crown with Mulvaney making the best case for passage and enactment of the measure as well as tax reform according to sources in the room.  We underscore that the implications for Trump’s agenda, Speaker Ryan and the Republican party and the individual health market are so significant that failure isn’t an option.  

 

We think Trump, Ryan and McCarthy will find the votes to get them over the finish line - then the hard work begins in the Senate.

 

 

*  *  *  *  *

 

Editor's Note: This is an excerpt from research written by JT Taylor, chief political stratgeist at Hedgeye. Insititutional investors interested in access email sales@hedgeye.com.


What Kim Jong-un Learned From Qadafi and Saddam Hussein

Takeaway: It is imperative that Secretary of State Tillerson have a team in place to deal with the growing existential threat posed by North Korea.

What Kim Jong-un Learned From Qadafi and Saddam Hussein - kim jong

 

The departure of South Korean President Park Geun-hye from the Blue House executive mansion last week was not unexpected; the long-running corruption scandal and eventual impeachment of Park brought to an end a tumultuous and unsettling period for South Korean democracy.

 

Encouragingly, it also demonstrated the resilience of democratic institutions for one of America's key allies and our 7th largest trading partner. New elections are now set for May 9th, to choose a successor to Park.  

 

But while streets in Seoul are now quiet, the future direction of South Korean foreign policy is still very much up-for-grabs. At this point, domestic weariness with Park's hard-nosed approach with the North appears to give South Korean "progressives" the upper hand in the May elections; election day surprises are, however, a staple of South Korean politics.

 

Should "progressives" -- the South Korean Democratic Party in particular -- gain the Blue House, their tradition of a "Sunshine" policy toward the North is likely to be revived. This means:

 

  1. Reopening economic engagement with the North;
  2. Attempting a diplomatic outreach with Pyongyang; and
  3. Judged by recent statements, pushing back on the stationing of U.S. anti-missile batteries ("THAAD") that are currently driving dyspepsia both in Pyongyang and Beijing. 

 

These shifts in South Korean politics are nothing new. North Korean missile testing, however, is. Earlier tests have been described by Council on Foreign Relations President Richard Haas as "station identification" - reminding the world not to forget Pyongyang.

 

But testing earlier this month -- salvo-launched solid fuel missiles from mobile transporters -- signals a very different and far more dangerous path by North Korean leader Kim Jong-un: a war-fighting capability with weapons of mass destruction, including, eventually, nuclear-capable intercontinental missiles, to hold the U.S. hostage in the event of future crises on the Korean peninsula.

 

Kim has learned the lesson from the collapse of governments in Libya (Qadafi) and Iraq (Saddam Hussein): dictatorial leaders threatened by the west are doomed in the absence of nuclear capability. 

Tillerson's Travels

Thankfully, Secretary of State Rex Tillerson was just on the road -- to the two countries in NE Asia that need U.S. reassurance (Japan and South Korea), and to the one country (China) at least partially complicit in Pyongyang's missile and nuclear madness.

 

  • Rex made headlines by stating that Obama's "strategic patience" policy toward the North was at an end, and that "all options are on the table" -- the latter statement containing an implicit U.S. military threat.
  • Despite the press frenzy, however, these are largely self-evident conclusions. But they did provide some long-overdue markers to Beijing, where Tillerson's visit last weekend was largely rhetoric-free and focused where it should be: on North Korea.

 

Next steps for Rex? Pave the way for a Mar-a-Lago U.S.-China summit, tentatively scheduled next month between Presidents Trump and Xi. This meeting looms as monumentally significant -- both to chart an agreed course ahead on North Korea, and to smooth Beijing-Washington relations roiled by nationalistic "China Dream" and "America First" rhetoric.

 

Setting the stage for a successful summit may well be the toughest and most important challenge of Rex Tillerson's entire foreign policy stewardship. 

 

In this light especially, it is imperative that the White House give Tillerson the ability to form a foreign policy team whose competence is commensurate with the challenges he and his department face. Political constraints on that personnel-selection process are incredibly short-sighted; and with the growing existential threat posed by Kim Jong-un, also highly dangerous. 


Capital Brief: 5 Things to Watch In Washington

Capital Brief: 5 Things to Watch In Washington - z troo

 

Say what you will about him, there's never a dull moment with Donald Trump in the White House. 

 

Following another event filled week which included MSNBC's Rachel Maddow "exposing" 2 pages of Trump's 2005 tax return, the president is now set to sit down face-to-face with German Chancellor Angela Merkel for the first time.

 

Recall that during his campaign, Trump attacked Merkel for “ruining” Germany and labeled her decision allowing over 1 million refugees into Germany “insane.” He even pulled out his crystal ball and predicted her citizens would overthrow her.

 

 

On that note, here's a quick, distilled look at five other key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

 

SWEETEN THE PILL

#HealthcareReform

Capital Brief: 5 Things to Watch In Washington - Obamacare cartoon 12.07.2016

The Republican goal of health care reform is to move toward a system that has more choice and competition that will stabilize the marketplace. The pharmaceutical industry is moving to preemptively find common ground with Trump Administration on the issue.  Given the president’s goal to streamline and improve the FDA process, drug companies acknowledge that the pricing model needs to evolve.

 

But they feel that it is a tough proposition as the approval process takes several years. They are hoping to move towards an outcome based system and believe that can help speed up the approval process.

 

“TRUMP IS TEMPORARY, REGULATORY REFORM IS FOREVER*”

#RegulationNation

Capital Brief: 5 Things to Watch In Washington - z capdome

With almost everyone on Capitol Hill rushing the legislative gates of regulatory reform, Ohio Senator Rob Portman is the stand out with his Regulatory Accountability Act -- the preferred industry approach and the bane of dozens of interest groups. House Republicans have tried introducing more draconian bills that would allow Congress to have veto authority on any new regulations. But those bills won’t pass the Senate.

 

With his eye on 60 votes, Portman is reaching across the aisle to include Senators Claire McCaskill and Heidi Heitkamp in his more pragmatic effort. This may not be Steve Bannon’s ideal way “to deconstruct the administrative state,” but it has the best hope in taking a major step in that direction.

 

FRACK IS BACK

#oil #fracking

Capital Brief: 5 Things to Watch In Washington - z froyo

The Trump Administration is planning to repeal Obama’s landmark rule setting standards for hydraulic fracturing on federal land. The Obama Justice Department had been fighting the oil and natural gas industry and conservative states to get the rule reinstated.

 

The Department of the Interior would likely propose an repeal of the rule within the next 90 days. It will likely become official early next year. This rule was a top target of key industry allies to President Trump.

 

OFF THE RAILS

#infrastructure

Capital Brief: 5 Things to Watch In Washington - z infro

While Trump is calling for $1 trillion in infrastructure spending over the next ten years, his budget proposal looks to cut funding for the Department of Transportation by 13 percent. The main cuts are to the Federal Transit Administration's Capital Investment program, as well as the elimination of funding for the Essential Air Service program and federal support for long-distance Amtrak trains.

 

The cuts have raised bipartisan anger as both sides view this as a step in the wrong direction to Trump’s proposed infrastructure spending. 

 

PRIMPING FOR PARIS

#climate

Capital Brief: 5 Things to Watch In Washington - z pa

Trump officials are working with energy companies to determine the future of America’s involvement in the Paris climate agreement. Many companies are pushing the Administration to remain in the pact, but to dial back President Obama’s greenhouse gas emissions with the original pledge committing the U.S. to reduce emissions by 26 to 28 percent by 2025.

 

While no action has been taken just yet, the climate agreement is pitting Secretary of State Rex Tillerson and Ivanka and Jared Kushner against the more conservative wing of the Administration.


OPEC Still Optimistic Production Cuts Will Bring Market Into Balance & Stabilize Prices

Meanwhile, EIA Forecasts US Shale Production Will Rise 1 Million B/D in 2017

 

OPEC Still Optimistic Production Cuts Will Bring Market Into Balance & Stabilize Prices - opec 22

 

VIENNA, AUSTRIA -- While the US East Coast is battling a Nor’Easter storm with blizzard conditions today, oil prices are bracing for another storm on Wednesday in the form of EIA’s weekly crude inventory data.

 

Last week US crude stocks rose for the 9th straight week by 8.2 million barrels a day (b/d) to 528 million barrels. Another EIA announcement of an increase in crude stocks on Wednesday would almost certainly send oil prices further downward.

 

On Monday, EIA released its monthly drilling activity report that forecasts April 2017 US shale production will increase by 109,000 b/d to 4.96 million b/d. The Permian Basin alone is forecast to increase by 79,000 b/d to 2.29 million b/d, according to EIA. If this trend continues, US shale production would add another one million b/d in 2017.

Is OPEC Worried?

If you thought all of this bearish data for oil prices was worrying OPEC, you would be wrong. Instead OPEC remains positive and calm about its production cut agreement working as intended to bring the market into balance and stabilize prices.


OPEC maintains that it is in the optimistic camp when it comes to oil prices and market rebalancing. Saudi Arabia also shares confidence that the production cut agreement is working and cautions against pessimism less than three months into the deal. However, the Saudis also acknowledged that better compliance is needed especially from Iraq and Russia.

 

OPEC seems to have its talking points down with all key players saying that there has been no decision yet about extending the agreement in June for another six months. OPEC’s compliance monitoring committee meets next week in Kuwait and will begin to discuss the extension.

 

However, don’t expect any final decision until OPEC’s regular meeting on May 25 in Vienna. Meanwhile OPEC is considering some additional conditions regarding an any possible extension.

 

First, it was conveyed that non-OPEC participants in production cut deal will be invited to participate in the the May 25 OPEC meeting in some way. There could also be changes to exempted countries in any extension.

 

The Saudis raised the specter that Iran may need to participate if the cuts are to be extended. In addition, because of the Nigeria's successful increase in production, there is the potential that its exemption under the production cut agreement may be lifted if cuts are extended for another six months.

Bottom Line

OPEC cautions about the market being misled about rising US crude stocks and rig counts. For OPEC, OECD inventory data is the metric it will use to gauge success of the production cut deal, and OPEC expects stocks to decrease into the five-year average range. However this seems impossible without an extension of the production cut deal.

 

In addition, both EIA and IEA forecasts show OECD inventories will be well above the five-year average range even with full OPEC compliance.

EDITOR'S NOTE

This is an excerpt from an institutional research note written by Hedgeye Senior Energy Policy analyst Joseph McMonigle. For access to the entire institutional research note ping sales@hedgeye.com.


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