November 2017 - Politics & the Markets (Greg Valliere - Horizon Investments)

The ongoing thoughts from Greg Valliere, the Chief Global Strategist for Horizon Investments, who has a lot of great insights to politics & the ramification on financial markets.

November 30, 2017

A Terrible Amendment May Wind Up In the Tax Bill

CHANGES TO THE TAX BILL ARE INEVITABLE as the Senate races toward passage of its version, probably within the next 24 hours. The top corporate rate may rise a bit, there may be a break for property taxes, etc. But the one idea that leaves us mystified is the "Corker trigger" which would raise taxes in six years if revenues don't meet expectations.

THIS IS A TERRIBLE IDEA: Many Republicans agree that satisfying Sen. Bob Corker and other deficit hawks is crucial to the bill's ultimate passage, but they're aghast at the prospect of an automatic trigger that could raise taxes by $350 billion in the next decade if the economy and revenues don't grow at a targeted rate.

THE BUSINESS CYCLE HAS NOT BEEN OUTLAWED – what if there's a recession in the next few years? What if there's a geopolitical wild card? Would a tax hike be welcome under those circumstances? Why wouldn't spending cuts be part of a trigger, not just tax hikes? Frankly, we get triggers down the road when politicians lack the guts to make changes now.

MOST DAMNINGLY, corporations may find it difficult to make long-term plans if their lower taxes are threatened by the Corker amendment – which is a major reason why the Chamber of Commerce and the Wall Street Journal editorial page have blasted the idea. Nevertheless, many GOP Senators who hate the idea say it's not a deal-killer; they want a "victory" above all else.

THE CORKER AMENDMENT is just one of many last-minute twists as the Senate seeks to pass the tax bill by tomorrow. The final vote will be close – Vice President Pence may have to break a tie – but we still expect the measure to pass; there should be enough deals to get 50 Republicans to a yes vote. Then comes the House-Senate conference committee, which will have to split the differences between the two bills, and then comes a final vote in both houses to approve the conference committee's bill.

THE ONE WILD CARD that could disrupt this process isn't necessarily the Corker amendment – it's the increasingly erratic president, whose tweets this week have alarmed even his supporters. Does he really want to re-litigate the Access Hollywood tapes or Barack Obama's birthplace? Does he really need a fight with UK Prime Minister Theresa May? We raise the issue of Trump's temperament largely because he could blow a gasket if the tax bill fails to give him what he wants for business.

THE TOP CORPORATE TAX RATE may have to settle at about 22% (or get a staggered phase-in), and some Senators are talking about retaining the corporate alternative minimum tax. A less positive bill for business would be the result of adding expensive last-minute provisions, such as more generous treatment of pass-through firms. Trump has been insistent that the top corporate rate should be 20% – he initially wanted 15% – so the prospect of him fighting with his own party cannot be dismissed.

BUT THE BIG PICTURE REMAINS UNCHANGED: There's tremendous momentum for this bill, with Republicans and the euphoric markets tasting victory to such an extent that they will overlook obvious flaws like the Corker amendment as the bill races toward enactment.

November 29, 2017

A Momentum Breakout in Washington

MOMENTUM IS NOT JUST CONFINED TO THE ROARING STOCK MARKET: It's breaking out everywhere, starting with the locomotive on Capitol Hill for a tax bill.
LET'S MAKE A DEAL: A half dozen Republicans in the Senate want something, and they'll get early Christmas presents. Susan Collins will get her deal on health care subsidies. Ron Johnson will get his deal on pass-through companies. Bob Corker and the fiscal hawks will get a clumsy deal on tax hikes if federal revenues don't surge. You name it – there's a deal for every supplicant.
SO THE TAX BILL NOW HEADS TO THE SENATE FLOOR with tremendous momentum. Yes, Republicans are still short by a handful of votes, but why not hold out when you can get something in exchange? So the wheeling and dealing will persist, but the tax bill is a pure momentum play; the issue increasingly is not whether it will pass, but when.
WE PREDICTED FOR MONTHS that a bill would win enactment, but later in the winter – if we're off by a couple of months, so be it. Some serious snags loom for a House-Senate conference committee in December – which still might delay ultimate passage – but a total breakdown looks very unlikely.
MOMENTUM IS STRONG FOR A GOVERNMENT SHUTDOWN: Donald Trump and the Democrats will fight and posture for weeks over amendments to a budget deal, which may not pass until early 2018 amid media hype over a government shutdown. But no one seems to care, certainly not the markets, which won't pay much attention to a potential shutdown until it becomes imminent.  
THE ULTIMATE MOMENTUM, OF COURSE, is in the financial markets, which got quite a message from Jerome Powell in his flawless confirmation hearing yesterday. Regulations are strong enough, he said, and interest rate hikes will be gradual. What's not to like about that? The more investors heard Powell yesterday, the higher stocks rose. A very impressive debut; Powell will ride this momentum to easy confirmation as the next Fed Chairman.
THE ONE MOMENTUM THAT WORRIES US is the increasing drumbeat for war with North Korea, as Lindsey Graham leads a chorus of hawks who want military strikes now. Donald Trump listens to Graham, despite their previous battles.
WE HAVE BELIEVED FOR MONTHS that the markets are too sanguine on Korea, and we continue to believe chances of war are about 20%. Nations miscalculated in the summer of 1914 as momentum for war became inexorable; we're not there yet, but North Korea's recklessness is increasingly unnerving. Momentum for a compromise is nowhere in sight – the only major worry for the Goldilocks scenario that has electrified the markets.

November 28, 2017

Most Important Day of the Year?

THE STAKES ARE MIGHTY HIGH TODAY, because the financial markets will get some clarity on the tax bill, on a potential government shutdown, and on the Fed's monetary policy. It's not a stretch to assert that today is the most important day of the year in Washington (so far).


1. The Tax bill: Republicans still aren't sure they have the votes in the Senate, but there will be an important signal as the Budget Committee votes later today on whether to send the measure to the floor. Two GOP dissidents on the panel have made this a close call – Sen. Bob Corker has concerns about the deficit, and Sen. Ron Johnson wants more generous treatment of pass-through corporations.

GETTING TO YES: As we wrote yesterday, Johnson and Sen. Steve Daines probably will come around on pass-through taxes. But Corker and two other deficit hawks – Jeff Flake and John McCain – aren't running again and can throw their weight around. They want a provision in the bill that would require a tax increase if future revenues aren't as robust as proponents are predicting.

This idea has caught on, and could greatly complicate the bill's path – and it surely would complicate long-term tax planning if a future tax hike suddenly becomes a possibility.

KEEP IT MOVING: We think the Budget Committee probably will vote to send the bill to the floor; even if it loses or there's a tie, the measure still could be sent to the floor. And we continue to nervously predict that the tax bill will get enacted – we're still on the low side with 55% odds, but getting Rand Paul on board yesterday was significant.

WHAT CONCERNS US is that the fixes required to keep dissident Senators happy will cost money, and a logical place to find money is the corporate tax, which may not reach 20%, as Donald Trump demands. A top rate of 22% or 23% or a delayed phase-in still is possible. Any major changes could provoke Trump, who’s a bull in this very delicately constructed China shop.

Bottom Line: If the Senate Budget Committee votes late today to send the tax bill to the floor, that's a market plus – a clear sign that the bill is very much alive. If the committee bogs down, it's not the end of the world, since the measure still should land in the Senate, which could pass it within the next few days – setting the stage for the home stretch: the conference committee deliberations.

2.) Government shutdown: We've been warning for weeks that this is the December sleeper issue, and sure enough there are rumblings that Democrats will not provide the necessary votes to keep the government funded past Dec. 8. Trump will meet with the Big Four this afternoon – McConnell, Ryan, Schumer and Pelosi – in an effort to reach a compromise.

We do not expect a budget deal, maybe just some vague platitudes about working together. Why? It's only Nov. 28, that's why. The most likely outcome of today's meeting will be support for a new continuing resolution lasting for another few weeks – this could drag on until Dec. 21 or 22.

Schumer and Pelosi would face withering criticism from their troops if there isn't an immigration deal on "the dreamers," and they also want a major increase in domestic spending – close to the enormous hike that's coming for the Pentagon. So why cut a deal now? Why not wait until there's a very real threat of a shutdown? The likely drama is too irresistible to finalize a deal today.

Bottom line: This could become an irritant for the markets, which don't like uncertainty. Defense firms and other federal contractors have been in limbo since the fiscal year began on Oct. 1, and while they will get their increased funding, the issue is when. And for the Federal Reserve, a rate hike on Dec. 13 – amid concerns about a shutdown – could become a closer call.

3.) New sheriff in town: The markets will carefully scrutinize today's confirmation testimony from Jerome Powell, who's a lock to become Fed Chairman. We think Powell represents a threat to Trump, for three reasons: he's generally supportive of tough financial regulations and Trump is not; like all Fed officials, Powell zealously guards the central bank's independence; and he will have to raise interest rates, perhaps frequently.

Bottom line: Powell is on an inevitable a collision course with the temperamental president. Powell does not support easing rules on risk-based capital requirements, but there's a bigger issue: Could there be three interest rate hikes next year? Or four, as some Wall Street analysts are predicting? When Trump is displeased, no one is immune from his scathing tweets, so we'll be watching carefully today to see if Powell has thick skin. He'll need it.

November 27, 2017

The Pace Picks Up Dramatically This Week

HUGE ISSUES WILL BE ON THE FRONT BURNER for the next month, but only one matters for the markets: the tax bill, still a close call but likely to advance in the Senate this week. We'll get a good idea in the next 24 hours whether the measure is in trouble, as members of Congress return from a week at home – and the Senate (probably tomorrow) votes to send the bill to the floor.

THE BOTTOM LINE ON TAXES is becoming clear: there isn't much public enthusiasm for the bill, but Republicans are still remarkably unified; it's the only victory that matters to them this year. So the arm-twisting will intensify today to persuade at least half a dozen wavering Senate Republicans to support the measure, which still doesn't have enough "yes" votes.

THE DRIVE TOWARD YES: The Republicans are close – but they aren't there yet. Here's our latest take...

Two dissident Republicans who want better treatment for pass-through firms will come around. We think both Sens. Ron Johnson and Steve Daines will get what they need.

Three deficit hawks – Bob Corker, Jeff Flake and John McCain – will read this morning's Wall Street Journal lead editorial and vote to take a risk that higher GDP growth will produce much higher revenues if the bill passes.

We think Lisa Murkowski of Alaska can accept a tax bill that increases oil drilling in the Arctic Circle.

We think Susan Collins may come around if there's no provision to kill the Obamacare individual mandate.

We think ailing Sen. Rand Paul will come around, but his vote is never a sure thing.

It's a close call in the Dec. 12 Alabama Senate vote, but even if the Democrat wins, GOP Sen. Luther Strange will be in the Senate through late December. He will vote for the tax bill.

BASED ON THE ABOVE, WE THINK REPUBLICANS CAN HOLD THEIR LOSSES to two votes, which would allow Vice President Pence to break a tie. Senate approval of its tax bill – possibly by late this week – would pave the way for a House-Senate conference committee, which will wheel and deal and produce a measure that both houses could pass before Christmas, which is sooner than we anticipated – but that timing is no slam dunk.

SO WHY AREN'T WE HIGHER THAN A 55% CHANCE the bill will win enactment? Plenty of snags lurk – Donald Trump's meddling, the need to split the difference on many provisions, a shortage of money to pay for everything, which could result in less generous provisions for business, and several other major distractions that will become apparent this week.

THE BIGGEST DISTRACTION is the threat of a government shutdown on Dec. 8, when a temporary funding bill expires. Democrats are insistent on action to protect "dreamers" and reform immigration, and they want to aid health insurers (but not as part of a deal to kill the Obamacare mandate). The Democrats have the votes to filibuster the spending bill if they don’t get their way.

SHOULD THE MARKETS WORRY ABOUT A SHUTDOWN? Probably not, since a "kick the can" tactic could delay any crisis until late December – or into 2018. "Kick the can" will apply to many provisions, including the Iran treaty, the Children's Health Care Insurance Program, intelligence gathering provisions, etc.

WHAT IS NOT A DISTRACTION FOR THE MARKETS: Who will head the Consumer Financial Protection Bureau? Voters and the markets don't care, it's inside Washington baseball. It gives Democrats an excuse to claim the GOP wants to coddle big banks, it gives Trump an excuse to call the agency's proponent, Elizabeth Warren, "Pocahontas." Ordinary voters won't pay attention.

SEXUAL HARASSMENT IS A SERIOUS ISSUE, and it will be the lead story on many evening newscasts in December, but it will have absolutely no impact on the markets (unless Trump himself re-emerges as a key player). For the two parties, it's a case of "a pox on both your houses."

THE BIGGEST DECEMBER WILD CARD: Robert Mueller is closing in on more indictments, amid reports that Gen. Michael Flynn may be cooperating with the probe. This issue has retreated from the limelight, largely because Mueller is more discreet than James Comey, but make no mistake: more indictments and plea-bargaining are imminent, and if this ensnares Trump's own family – Jared Kushner and Donald Trump, Jr. – we don't rule out him firing Mueller.

KEEPING OUR EYE ON THE BALL: The dominant market story, of course, is the solid economic growth and a lack of significant inflation. We'll get Janet Yellen's take on Wednesday before the Joint Economic Committee, a day after testimony from her likely successor, Jerome Powell. They both may cite some concerns but they cannot ignore the biggest story of all for the financial markets: Goldilocks persists.

November 21, 2017

Happy Thanksgiving From Us to You

CONGRESS IS GONE FOR THE REST OF THE WEEK and so are the Capitol Notes. We're resting up for what should be a wild winter of tax and budget debate, scandals and the usual Washington drama.

WE ARE THANKFUL FOR SO MUCH, not just the fantastic market performance this year, but for your loyal support and friendship. We're grateful that you read every day, and we appreciate every one of your emails – critical or complimentary.

SO FROM OUR GROWING FAMILY AT HORIZON INVESTMENTS, we wish you and your families a very happy holiday as we give thanks for our many blessings.

November 20, 2017

Let's Make a Deal – The Tax Bill is Still Alive

A HALF DOZEN SENATE REPUBLICANS still have major issues with the pending tax bill, but there's plenty of time to cut deals. Congress may be gone this week, but the horse trading will continue; the measure appeared to be in trouble late last week, but we'll stick with our 55% odds that it will win enactment.

THERE'S STILL A CHANCE THAT THE BILL COULD BOG DOWN, either on the Senate floor during the week of Dec. 1, or in a House-Senate conference committee later next month, or when the committee's bill has to return to both houses for final ratification. There's no official scoring, there's been very little vetting – but this is a locomotive; the momentum is extraordinary.

YES, THERE ARE PLENTY OF ISSUES between the two houses, but virtually all of them – the top rate, timing of corporate tax cuts, the state and local tax break, etc. – look resolvable. "Split the difference" will be the mantra when the bill gets to the conference committee.

Why aren't we higher than 55% odds? There still are at least a half dozen wavering Republicans –

Ron Johnson caused some GOP anxiety last week when he threatened to oppose the bill because the Senate version doesn't treat pass-through corporations very generously. There's a widespread belief in Congress that his concerns will be addressed.

Susan Collins could vote no if abolition of the Obamacare mandate is included in the Senate bill, but administration officials made it clear this weekend that if this provision endangers passage of the entire tax bill, they're prepared to throw the Obamacare amendment overboard.

Lisa Murkowski could oppose the bill if the Obamacare provision is retained, but she has her sights on an amendment that would be very popular in her home state of Alaska: authority for more oil drilling near the Arctic Circle. If she can win that, she probably would vote yes on the tax bill.

Bob Corker and Jeff Flake aren't seeking re-election and they're still squawking about the bill's cost – $1.5 trillion in added deficits over ten years, even when using "dynamic scoring." But both want to pass a tax bill and we would guess they will reluctantly vote yes.

Rand Paul always has objections to something, but he seems willing to vote yes if the bill can be made a little more generous to middle class taxpayers – which could happen if the Obamacare mandate is abolished or the corporate tax cut is delayed.

John McCain has issues with the bill's cost and the Obamacare provision, but in the finest Washington tradition, he will get his deal – an enormous increase in defense spending, which will be attached to the budget that probably will pass in December.

The new Alabama senator, whomever that may be, doesn't have to be ratified by state officials until 22 days after the Dec. 12 election, which would assure a yes vote from current Sen. Luther Strange, who theoretically could retain his seat until Jan. 2.

IT'S POSSIBLE THAT THERE COULD BE TWO DEFECTIONS, which would require Mike Pence to break a tie in the Senate. If there are three GOP no votes, the bill could die – until more deals are cut. What strikes us is that Republican leaders are fiercely determined to cut any deal, make any promise, to get this bill done. We think they will, with only one caveat – Donald Trump needs to butt out; the one thing that would derail this steamroller is meddling from the president.

THE DEMOCRATS' MOOD IS TELLING: They're asserting that the bill, which generates only lukewarm public support now, will become even less popular in 2018 if taxpayers conclude that they got virtually nothing from the tax measure. So Democrats are giving up on changing the bill; they're already planning on how to make it a campaign issue – a sign they believe the measure will pass.

November 16, 2017

The Tax Bill Is In Trouble

WE'RE NOT READY TO THROW IN THE TOWEL on the tax bill, it's way too premature for that. But it's in trouble – and the best scenario for proponents of the bill may be for Vice President Pence to eventually break a 50-50 tie in the Senate, where a Republican insurrection may be brewing.

HOW IRONIC: This news comes as the House prepares to vote later today to pass its version of tax reform, fulfilling Paul Ryan's promise to approve a bill before the Thanksgiving break. Instead of celebrating, Republicans face the prospect that the Senate, as usual, may balk.

THE VOTE COUNT: With a 52-48 majority, the GOP can afford only two defections, and now there already may be one, in the wake of Sen. Ron Johnson's assertion yesterday that he will not support the bill. We previously identified a half dozen potential opponents, and Johnson wasn't even on the list.

JOHNSON COULD COME BACK TO THE FOLD: He frequently squawks and then backs down, and his opposition to the Senate Finance Committee bill and its failure to address concerns about the taxation of pass-through companies can be addressed in a compromise, we believe. More troubling is his assertion that the entire tax writing process has been largely in secret and needs to slow down. Many of his colleagues agree.

WHO ELSE COULD DEFECT? This is where things get disturbing for the markets. Three Senators are wavering because of an amendment to kill the Obamacare individual mandate: Susan Collins, Lisa Murkowski and, perhaps, John McCain – although he may vote yes as a thank you for the enormous defense spending increase coming in the 2018 budget bill that has to pass soon.

OTHER DEFECTORS could include Sens. Jeff Flake and Bob Corker, who object to a potential $1.5 trillion addition to the national debt. Quirky gadfly Rand Paul may vote against the bill. And then there's Alabama, where Democrat Doug Jones has opened up a significant lead in the Dec. 12 Senate race. 

WHAT DOES THIS MEAN FOR THE MARKETS? Two implications: First, this week's developments could slow the tax-writing process as Senate GOP leaders scramble to address concerns of Johnson and others. Second, we're now entering a period, probably lasting for weeks, of significant uncertainty about the Senate vote count – and the markets dislike uncertainty.

FOR NOW, WE'LL STICK WITH OUR CALL that there's a 55% chance a tax bill will win enactment, but regular readers know we have anticipated a very rocky ride between Thanksgiving and Christmas. We thought yesterday that inserting the Obamacare provision greatly complicates tax reform, and we now suspect Johnson will not be the only GOP senator to waver.

WHAT IF THE TAX BILL STALLS? If Senate passage is truly jeopardized, the Republicans may have only one option – make the bill palatable to a handful of moderate Democrats. But there would be a price to pay: a final tax bill that's far less generous to the wealthy and corporations than the measure that will pass in the House today.

November 15, 2017

A Risky Gamble that Complicates the Tax Bill

TOUCHING THE HOT STOVE: Republicans have gotten badly burned – repeatedly – over the issue of abolishing Obamacare, but give them credit for persistence. The Senate GOP apparently will add a provision to the tax bill that would kill the individual health mandate, and that complicates the entire tax bill.

EVEN HOUSE GOP LEADERS HAD REJECTED the idea of attaching the Obamacare provision to their tax bill, which should pass on the House floor tomorrow or Friday, a remarkably speedy accomplishment. House Republicans would gladly agree in a conference committee to kill the main provision of Obamacare, but the key issue obviously comes first – are there are enough votes to do that in the full Senate?

LOOKING FOR THE VOTES: Just as the Obamacare bill failed in the Senate months ago, the same cast of characters could oppose it: GOP Sens. Susan Collins, Lisa Murkowski and John McCain (although the latter may vote for the bill). There are other possible no votes from Sens. Jeff Flake and Bob Corker, who are opposed to a tax bill that could lose $1.5 trillion. For added drama, there are no assurances that maverick Sen. Rand Paul will vote for the final bill, and then there's the Alabama fiasco; no one can be sure who (if anyone) will fill that seat.

SO WHY WOULD SENATE REPUBLICANS want to take a chance of losing the entire tax bill, just as they lost on Obamacare repeal? Perhaps they want to show President Trump and the GOP base – who are obsessed with abolishing Obamacare – that they gave it one last college try before abandoning the idea. Once Senators fail to pass a tax bill with Obamacare abolition included, they could quickly move to pass a clean tax reform measure without the health provision. 

COULD A TAX BILL WIN ENACTMENT with the Obamacare provision included? It's not out of the question – a lot of Republicans love the idea since since there's the lure of an extra $300 billion from killing the mandate, which would pay for a lot more in tax cuts. And there's a possible side-deal that could boost funding for health insurers. All sorts of wheeling and dealing is likely as the conference committee begins deliberations in December.

FORGET THE DEMOCRATS: One likely result of throwing repeal of the mandate into the tax bill is that it virtually eliminates any chance that even one or two Democrats will vote for the measure; bipartisanship was on life support already. In fact, we predict that if there's a chance of actually abolishing the health mandate, Chuck Schumer will go nuclear – he will employ every trick in the book to grind the government to a halt when fiscal 2018 funding expires on Dec. 8.

SO HERE WE GO AGAIN: A tax bill, headed for passage this winter, now has been complicated by still another fight over Obamacare. There will be fresh sound bites as Democrats howl about Americans losing lose health coverage to pay for tax cuts. This is a risk for the GOP, and it just made passage of a tax bill more difficult.

November 14, 2017

Democrats Begin Jockeying for 2020; Biden is the Frontrunner

ONLY IN WASHINGTON would speculation begin about a presidential election still three years away, but make no mistake – the race is on. Based on what we're hearing, the Democrats have a major problem: no fresh blood and no fresh ideas, as Joe Biden emerges as the early frontrunner. Biden turns 75 next week.

THE ITCH: Once candidates get "the itch," they never stop fantasizing about becoming president, especially if they once had a plausible chance. This certainly applies to Bernie Sanders, 76, who says in private that he was robbed of the nomination last year by the Democratic National Committee, which was a puppet for Hillary Clinton.

LOOKING FOR SOMEONE YOUNGER? Biden is likely to run while Sanders has been more circumspect, perhaps because his wife is involved in a financial scandal in Vermont. Another elderly entrant could be Jerry Brown, fit and razor sharp – he's 79 but is a major beneficiary as California moves its primary up to early March.

DONALD TRUMP IS THE CLEAR FAVORITE to win the GOP nomination, assuming his health is good; he will be 74 in the 2020 campaign. What about the two dozen Democrats thinking about running? No superstar in the group. Here's our very, very early handicapping: 

10. The billionaires: Got a ton of money and a huge ego? Welcome to politics. We just elected a billionaire novice, yet there are plenty of super-rich Democrats who may run: Oprah Winfrey, Mark Zuckerberg, Howard Schultz, Mark Cuban, Jeff Bezos, etc. Could one of them win the nomination? Not gonna happen.

9. The underdogs: Someone could burst out of the pack – Rep. Tim Ryan of Youngstown, charismatic Sen. Chris Murphy of Connecticut, the Castro brothers from San Antonio, Los Angeles Mayor Eric Garcetti, New York Sen. Kirsten Gillibrand, etc – all potential running mates on the ticket. We do not include another likely entrant, former Virginia Gov. Terry McAuliffe, because he is so closely tied to the Clintons. The Clintons are radioactive.

8. Jerry Brown: He's seriously weighing a run. Now considered a moderate in California, he's a tough guy who ruffles feathers, a professional politician who could win the early California primary. But 80 would seem to be the cutoff for a potential president, and Brown will turn 82 during the campaign.

7. Amy Klobuchar: Well regarded by party insiders, the liberal Minnesota Senator is outspoken on sexual harassment, which may be the first major issue of the 2020 campaign. We like her chances more than fellow Minnesota Sen. Al Franken, who has morphed from very funny to very dour. Klobuchar, meanwhile, is a dark horse to watch.

6. Cory Booker: Yes, he's a self-promoter, but that's an asset in this profession. He's very impressive in person, a former Stanford linebacker with a likeable personality. Booker is cagey on policy – not strictly liberal – who wants to appeal to all wings of the party. 

5. Andrew Cuomo: He has plenty of detractors in New York, but he also has plenty of cash on hand – perhaps the most of any potential candidate. Like his late father, Cuomo seems to agonize over whether to run, but if he wants to be president, 2020 is the year. The knock of him is whether he can play well in Middle America, but if Trump can, Cuomo can. 

4. Kamala Harris: She's still the insiders' favorite – a sharp-elbowed California pragmatist who has told associates that she's running for president in 2020. Half African-American and half Indian, Harris is an intriguing candidate who will have plenty of money from Silicon Valley and Hollywood. The progressives distrust her.

3. Joe Biden: He may be the favorite today but he simply isn't a good candidate – long-winded and gaffe-prone; listening to a Joe Biden speech is only slightly preferable to getting a root canal. And he's the ultimate establishment Democrat, not an asset in a party determined to shift to the progressive left.

2. Elizabeth Warren: If Sanders doesn't run, who would inherit his army of passionate young people? That's easy – the fiery Warren, who's an electrifying demagogue, passionately opposed to our industry, which she considers greedy and corrupt. She could stagger Trump in a debate, but we have to wonder: could Warren win in the general election? Unlikely. 

1. Bernie Sanders: Even people who don't like his socialist ideas agree that there's a certain authenticity with Sanders. He thinks he could have beaten Trump in Ohio, Pennsylvania, Michigan, etc. and we might get a chance to see if he can. One serious problem: his numbers don't add up – forgiving student debt and passing universal health insurance has to be paid for, and there aren't enough of "the rich" to do that.

LUCKY DONALD TRUMP: Is there anyone in this group who would be favored to beat Trump? It's hard to make that case despite the chaos that surrounds the president. If the economy is still strong, Trump could have a slight Electoral College advantage against any of the candidates we listed above. Our advice to the Democrats: find a fresh face.

November 13, 2017

Big Week in the House, Set to Pass Tax Bill; A New Concern – Trade Protectionism

A BIG WEEK IN THE HOUSE: Republicans have the votes to pass a tax bill on the House floor, probably on Thursday or Friday. Potholes lie ahead in December, but passage of a House bill by late this week will be a big deal, giving the issue momentum and showing financial markets that tax cuts are on track for enactment. 

NEXT – THE SENATE, where passing anything is like herding cats, and the tax bill will be no exception. Of all the Senate differences with the House, the press has focused on the state and local tax, but the far bigger issue is a phase-in of the corporate tax cut; the Senate's one-year delay is strongly opposed in the House (and in the markets).

THESE AND OTHER ISSUES could bog down the bill in December, when Donald Trump will be tempted to meddle. And lest we forget, an enormous budget battle looms in the first week of December, amid threats of a government shutdown as Chuck Schumer loads up the 2018 spending bill with his pet issues, such as immigration reform and aid to health insurers.

A CONFERENCE COMMITTEE will have to report its compromise bill back to each house this winter for a final vote, and that process could be a nail-biter. The ultimate question is whether the GOP can hold defections in the Senate to just two Republicans; we think they can. Republican leaders are adamant that a bill will pass, and chances look good that they will succeed. 

PRESIDENT TRUMP'S ASIA TRIP was controversy-free until the last couple of days, when he could not resist tweeting about "fat and short" Kim Jong-un and re-igniting the dispute over Russia's involvement in last year's election. That's hardly news any more, but there was one theme in the trip that worries us – the very real threat of trade protectionism.

TRUMP MADE IT CLEAR that he has little use for multinational trade deals – still another signal, in our opinion, that Trump is leaning toward pulling out of NAFTA. This prompted scathing editorials in the Wall Street Journal this weekend, warning that pulling out of NAFTA would slow U.S. economic growth and increase chances of recession (we're not sure about the latter but it's worth noting that exports account for 12.3% of U.S. GDP).

THERE ARE THREE MAJOR IMPLICATIONS of this move away from free trade: First, it gives China, Japan and other Asian nations more power to fill a vacuum created by U.S. abdication. Second, it increases the risk of trade disputes; aluminum and steel fights with China loom. Third, it hurts Trump politically in the Midwest and in other farm states, where agriculture will be a major loser if NAFTA dies.

ROY MOORE, ON THIN ICE: There's a one third chance he will lose the Dec. 12 Alabama Senate race to a Democrat; polls show the contest is essentially tied. There's a one third chance the President and other GOP leaders will persuade him to drop out, in light of a new comment from a Moore associate that "it was common knowledge" that he was attracted to teenage girls. And there's a one third chance – not much better – that he will win and be seated in the Senate.

November 9, 2017

What Are the Chances? We Handicap All the Top Washington Issues

IT'S MADDENING when analysts say a key issue is a 50-50 call; that's not real helpful, is it? So we offer our odds this morning on all the big Washington stories, and there's not a 50-50 call in the bunch:

CHANCES A TAX BILL WILL PASS IN THE HOUSE BY THANKSGIVING: 70%. The House needs to come up with more revenues, and GOP leaders – once again – got thrown under the bus by Donald Trump, who meddled last night from Asia. This is no slam dunk, even in the House; GOP Rep. Darrell Issa defected this week, and that's not a good sign.

CHANCES A TAX BILL WILL PASS IN THE SENATE BY CHRISTMAS: 70%. Despite all its flaws – it raises the deficit, kills cherished tax breaks, and favors the wealthy – we think there are just enough GOP votes in the Senate to pass it in December.

CHANCES A TAX BILL WINS ENACTMENT THIS WINTER: 55%. If chances are 70% in the House and Senate, why are we only at 55% for ultimate enactment? The conference committee will be a minefield, with huge unresolved issues as the bill sits in the winter sunlight for weeks. Watch the polls on this; GOP lawmakers will bolt if the public hates the tax deal.

CHANCES OF A GOVERNMENT SHUT-DOWN IN DECEMBER: 40%. Maybe 40% is too high, but that seems about right if Chuck Schumer decides to load up the 2018 funding bill with amendments on health insurers, immigration, gun control, etc. A budget eventually will pass – with a huge increase for defense spending (85% chance).

CHANCES OF A FED RATE HIKE NEXT MONTH: 90%. It would take a total collapse of economic data to prevent a rate hike at the Dec.12-13 FOMC meeting. Janet Yellen, who probably – but not definitely – will be gone by early 2018, will make it clear that more tightening is likely in 2018 (80% chance of at least two more rate hikes next year).

CHANCES THE ECONOMY COULD OVER-HEAT: 40%. We think there's a reasonable chance that the labor market could tighten dramatically (not many available workers), which will finally drive wages higher and lead to inflation fears in 2018. One thing appears pretty certain – there's no recession on the horizon (10% chance).

CHANCES THE GOP LOSES THE HOUSE NEXT YEAR: 60%. College educated suburban voters, especially women, are in full-fledged revolt against Donald Trump. And suddenly the 2018 House outlook has flipped. The Democrats need a net gain of 24 seats, and after the Virginia results this week, that target looks achievable.

CHANCES THE GOP LOSES THE SENATE NEXT YEAR: 40%. The big change here is that the Republicans goal of adding seats now looks less likely. There are so many vulnerable Democrats in conservative states that the GOP should hold on to the Senate, but suddenly this is a close call.

CHANCES OF MORE MUELLER INDICTMENTS: 100%. The special counsel probably will hold off on indictments while Trump is abroad, but a boat-load are coming: perhaps the Flynns first, then Carter Page, then the indictment everyone is whispering about: Jared Kushner. A first-year law student could get a liberal grand jury in the District of Columbia to indict this group on perjury charges; whether this leads to plea bargaining is the key issue.

CHANCES OF IMPEACHMENT: 30%. Mueller's findings will be explosive, and they will dominate Washington in 2018 – but Democrats run a risk of overplaying their hand. Do they have the 67 Senate votes to convict Trump? That's a mighty high bar to clear; we don't see it.

CHANCES OF TRUMP'S RE-NOMINATION: 80%. Assuming his health is good (an issue we raised earlier this week), we think the president will win re-nomination. Who can beat him? John Kasich? Jeff Flake? Bob Corker? Be serious – the GOP base hates those guys.

CHANCES OF TRUMP'S RE-ELECTION: 45%. A tough call, and it's certain to change in the coming months. You think he couldn't possibly win? If his support stays strong in the Rust Belt – and if the economy continues to improve – he will have a chance in the Electoral College.

CHANCES THE DEMOCRATS WILL NOMINATE SANDERS OR BIDEN: 65%. Bernie Sanders believes he was robbed last year, and probably will run again. Joe Biden appears to be running; he's in New Hampshire a lot. The party desperately needsa fresh face but we question Elizabeth Warren's chances in a general election.

CHANCES THAT NAFTA DIES: 60%. Trump hates the North American Free Trade agreement, and we don't think he's bluffing about wanting sweeping changes. NAFTA is hanging on by a thread.

CHANCES OF AN INFRASTRUCTURE BILL: 30%. This could have been relatively easy to pass earlier this year, but in polarized Washington chances have slipped dramatically. No one can figure out how to pay for an infrastructure bill – the private sector option has faded.

CHANCES OF AN IMMIGRATION BILL: 45%. This always was a close call, and it has gotten closer after Tuesday's election. Desperate for a victory, Trump may reach out to Democrats on this issue, agreeing on a deal to protect "Dreamers." Sounds like a plan, but the details will be daunting – and a wall won't get built.

CHANCES FOR HEALTH LEGISLATION: 60%. First of all, chances of killing Obamacare, already dim, faded even further after Tuesday night's results. Trump must realize that he now owns the issue of health care, so he may be forced to the bargaining table to deal on a bill supporting insurers. The Alexander-Murray compromise is not dead.

CHANCES OF A KOREAN WAR: 20%. The greatest likelihood – an 80% chance – is for a protracted stalemate, punctuated by North Korean arms tests and hostile rhetoric. But chances of a war are not zero, and this is the one issue that could disrupt the financial market rally.

CHANCES OF A MIDEAST BLOWUP: 40%. The winds of war are blowing, as Saudi Arabia fights Iran's increasingly blatant attempt to establish hegemony in the region. Tehran's funding for Hezbollah still represents a serious threat to Israel, which suddenly cannot count on peaceful relations with Lebanon. A snake pit, with a U.S.-Iranian naval skirmish in the Persian Gulf a persistent threat.

WHO KNOWS WHAT WE LEFT OUT? There are stories that could suddenly erupt – a fresh scandal, a natural disaster, more gun violence, a market hiccup, a Supreme Court vacancy, or an attempt to make CNN even more politicized – an antitrust issue or a media suppression issue? Despite all the unknowns, one basic theme persists –

OUR BOTTOM LINE is that there are plenty of issues to worry about, but the big story for financial markets continues to be the remarkable fundamentals – decent GDP growth, modest inflation, a strong labor market, and very solid corporate earnings. Chances that Goldilocks will persist throughout 2018: 75%.

November 8, 2017

Political Pendulum Shift; The Senate is Having Trouble With Tax Bill

WE HAVE ALWAYS BEEN RELUCTANT to over-analyze off-year elections, but after last night's results it's safe to say that chances of a "wave" election a year from now – with big GOP losses in the House and perhaps even the Senate – have increased. The voters are still restive, and a backlash against Donald Trump seems to be intensifying.

THE DEMOCRATS COULD STILL SPUTTER: They don't have much of an agenda, although support for a more activist government role in health care seems to be a clear trend (it was in Maine last night, where expanded Medicaid coverage easily won in a referendum). But the Democrats need more than just that issue; what they need is for voters to conclude that the middle class is getting shafted – that's the key, as always.

THIS IS WHERE THE LEAKED “PARADISE PAPERS” ENTER THE NARRATIVE: The list of celebrities who apparently sought to avoid taxation is staggering – not just fat cats like Wilbur Ross, but liberal hero Bono, the U2 frontman, and even Queen Elizabeth. A sense by voters that they pay their taxes while the rich do not is a powerful political issue, and the Republicans should be nervous because this goes directly to the tax bill.

THE SENATE HAS A MATH PROBLEM: It's becoming obvious to Senate tax writers that they cannot pay for all the goodies they want to cram into a tax bill; they need more revenues, and potential options are phasing in business tax cuts or setting the top corporate rate above Trump's goal of 20%. There are several other issues – the state and local tax break in particular – where the Senate and House will not agree, increasing the chances of a contentious conference committee this winter.

BUT THE BIGGER ISSUE, which is making many Republicans squirm, is the assertion by neutral tax analysts that middle class tax cuts will be modest at best, while "the rich" will benefit more, both in dollar terms and in percentage terms. This gives Chuck Schumer and Nancy Pelosi an opening – they will state over and over that 1% of the world's population has more than half of the global wealth; 10% of the population has about 90% of global wealth.

STATISTICS LIKE THAT ALLOWED TRUMP TO APPEAL TO THE ALIENATED MIDDLE CLASS, and it propelled him to a stunning victory as he promised to get things done and drain the swamp. Hillary Clinton and her corrupt Clinton Foundation were easy targets. But after last night's Trump repudiation, GOP lawmakers may have to consider a tax bill that is less generous to the wealthy and corporations. If they don't, there could be electoral repercussions next fall.

WE STILL THINK THERE'S A 55% PROBABILITY THAT A TAX BILL WILL PASS, but it's no slam dunk. And, for sure, completing a bill will take longer than the president wants and it will not be as grand as he anticipated.

REGARDLESS OF WHAT HAPPENS in the rest of Trump's Asia trip, he will return slightly diminished, facing the near-certainty of more Robert Mueller indictments later this month. And Republicans surely must have noticed that Trump immediately threw the losing Virginia gubernatorial candidate under the bus last night. Loyalty to Trump, on many fronts, is wavering.

November 7, 2017

Donald Trump's Greatest Risk – His Health

DONALD TRUMP STILL HAS STRONG SUPPORT in his base. Impeachment – and conviction – looks far-fetched. There’s no strong challenger to his re-nomination. He'll get his tax bill, probably by late winter. The economy looks good. So what should Trump worry about? That's easy – his health.

THIS IS A DELICATE ISSUE, but we hear enough whispering about the President's health to warrant this morning's piece. Despite our differences with Trump on some issues, we wish him good health; he's the president, after all. But there are clear warning signals:

Trump, 71, is at least 50 pounds overweight.

He loathes exercise, which he believes depletes energy that can't be regained.

Trump drives his golf cart onto the green rather than walk. He wouldn't walk up a slight hill for a photo-op at the last G-10 meeting.

We have a friend, a Secret Service agent often assigned to Trump, who says he has never seen anyone with worse dietary habits.

Trump voraciously consumes well-done steak, cheeseburgers and french fries. Those are his favorite foods. "Never saw him eat a piece of fruit," our friend says.

Trump boasts that he only gets four hours of sleep a night, which doctors say is insufficient.

It's a stressful job. Look at Barack Obama's hair. Photos of Franklin D. Roosevelt just before his death – at the age of 63 – are appalling.

Trump is angry most of the time, sources tell us. They say he profanely berates aides, who can never satisfy him, and he harbors seething resentments against enemies, real and imagined. 

Trump doesn't drink. A glass of wine or two per day is actually beneficial, most cardiologists say; it keeps the arteries open.

He has not, to our knowledge, had an annual physical or if he has, the results have not been disclosed.

ANTICIPATING SCORNFUL EMAILS, we would reiterate that we wish Donald Trump a long and healthy life. But there are serious danger signs, and we hope the president and his family will address them.

November 6, 2017

Tax Bill Attracts Foes; Reeling Dems Face Voters Tomorrow; Another Dove Leaving the Fed

YOU CANNOT BE SERIOUS: Are the Republicans really determined to attach an Obamacare replacement provision to the tax bill? Do they want to touch that hot stove once again? We're hearing that Paul Ryan is aghast at the prospect, which could derail the tax bill in the Senate, but President Trump and party activists want to give it one more try. They don't have the luxury of getting all that ambitious, because the tax bill already faces plenty of other obstacles.

THE TAX BILL MAY PASS LATE THIS WEEK in the Ways and Means Committee, with numerous provisions that the Senate will almost certainly reject in December. The latest flap is a provision in the House bill that would slap an excise tax on cross-border transactions – an issue that has generated furious opposition from multinational corporations. 

THERE'S ALREADY DISSENT over the state and local tax, killing the adoption tax credit, abolishing the tax deduction for steep individual medical expenses, and curbing the mortgage tax break, which doesn't have much support in the Senate. Restoring those tax breaks will require raising more revenues; we're still not convinced the top corporate tax will fall all the way to 20% in 2018.

WE UNDERSTAND THE GOP LEADERSHIP'S GOAL: Party officials acknowledge that the House and Senate measures will be different; the goal is to simply get two bills into a conference committee, where the differences can be ironed out. What we don't understand is continued assurances that this can be accomplished by Christmas; why set the bar so high when there's a huge risk of disappointment?

"I AM NOT A MEMBER OF ANY ORGANIZED POLITICAL PARTY – I'M A DEMOCRAT," the humorist Will Rogers famously cracked, and his words seem appropriate now as the Democrats confront a bitter civil war and the likelihood of an eventual purge that will exile the arrogant Bill and Hillary Clinton. As we wrote last Friday, the Democrats now seem likely to emulate the Republicans – veering sharply towards angry activists, rejecting the center.

IN THE MEANTIME, THE DEMOCRATS FACE a gubernatorial race tomorrow in Virginia that could deepen the party's gloom. A lackluster Republican ex-lobbyist, Ed Gillespie, is now within an earshot of winning, after trailing by double digits for most of the summer. Only recently did the Democrat, Dr. Ralph Northam, aggressively tie Gillespie to Donald Trump. The recriminations will be ferocious if Northam loses.

THE FED, LESS DOVISH: An era of extraordinary Fed accommodation is coming to a close. Within days of Janet Yellen's dismissal comes news that Bill Dudley, the New York Fed President, will also leave. Both were among the most dovish Fed officials in a generation, willing to keep policies loose until inflation became apparent – and it still hasn't.

THE NEW-LOOK FED may not raise rates faster than Yellen would have; her replacement and the eventual New York President (picked internally, not by President Trump) may be dovish as well. But events may force their hands: the Fed is now on track to wind down its balance sheet, and several rate hikes – maybe four – appear likely in the next 12 months, thanks to the tightening labor market, dramatic fiscal stimulus, soaring deficits and, perhaps, the whiff of inflation that Yellen and Dudley managed to avoid.

November 3, 2017

The Crack-up of Both Political Parties

NO NEED TO TAKE A DEEP DIVE into the tax plan unveiled yesterday – it's just the start of a negotiating process, with the Senate yet to weigh in with many changes: the estate tax, the treatment of debt, the state and local tax break, etc. No need to memorize the House proposal. 

THERE ARE EXCELLENT SUMMARIES this morning in the Wall Street Journal, which deployed a small army of reporters who analyzed all of the key provisions. The sausage-making now begins, with enactment of a final bill still likely by late winter – after Congress passes a 2018 budget, which will be a struggle.

YESTERDAY'S NEWS WAS DIZZYING – Janet Yellen's firing, the tax bill, the upcoming Trump trip to Asia, and reports that Robert Mueller's pit bulls are focusing on Jared Kushner. Obscured amid the cacophony were further signs that both political parties are in danger of cracking up, an extraordinary development with policy implications.

IT'S NOT JUST THE REPUBLICANS: Something close to civil war seems to be erupting between the Democrats' Old Guard – the Hillary Clinton faction – and left wing insurgents. Elizabeth Warren, increasingly looking like a candidate in 2020, flat-out asserted yesterday that the 2016 nomination was rigged against Bernie Sanders, which the party's base now accepts as fact. The Democratic National Committee was a puppet for Clinton, and the left is furious.

SANDERS, 76, HAS BEEN FAIRLY QUIET LATELY, but his supporters now have a bloody shirt to wave, and we suspect the Democrats will start looking like the GOP, as the establishment in both parties is vilified by the activists. Steve Bannon may knock off a couple more Republican moderates in primaries next year, making life even more difficult for Mitch McConnell and Paul Ryan. Those two leaders are despised by the party's activists.

THE POLICY IMPLICATIONS: The populists on the right and left hate free trade, and NAFTA is in serious trouble. They hate Wall Street. They hate tax cuts for "the rich" and corporations, which is why Republicans in Congress want to move the tax bill fast, before it becomes politically radioactive. And the populists in both parties hate foreign entanglements and huge defense outlays, which puts them at odds with the political establishment.

BOTTOM LINE: The Republican civil war will be won by the insurgents, because the party's base rejects the policies of Bob Corker, Jeff Flake and John McCain. The Democrats' civil war is a tougher call, but just as the voters have spoken in the GOP, they will tilt towards the populists in the Democratic Party. You think Warren can't possibly be the nominee in 2020? Think again – she (and Sanders, who's not even a Democrat) are poised to take over the party.

FOR TRUMP, THIS IS FANTASTIC NEWS: He's virtually assured of winning the nomination in 2020, assuming his health is good; he has the votes to thwart any impeachment effort. And seriously – could Jeff Flake or John Kasich really win the nomination in a party this conservative? If Trump gets to face Warren, he could win re-election because his divided party is more unified than her divided party.

November 2, 2017

Six Key Takeaways as Tax Bill Comes Into Focus

WE'RE NOT SURE what will be in the final House Ways and Means tax bill – hell, members of the committee still aren't sure. But amid all the math problems and last-minute bargaining this week, several general themes have come into focus:

1. A Delay of a Day or Two Isn't a Big Deal: Hand-wringing over a one-day delay (or a two-day delay) seems unwarranted. A bill will emerge today or tomorrow, and then it will be on a very fast track for a couple of weeks.

2. Tax Cuts for the Wealthy are Radioactive: Republicans can read the polls, which show deep public antipathy for tax cuts for the wealthy (and for business, for that matter). The business tax cuts are coming, but a top individual rate of 39.6% will prevail; the key issue is at what income threshold it will kick in. And while there may be some liberalization of the estate tax, its abolition is looking less likely.

3. Phase-ins and Sunsets – the New Reality: There are conflicting reports this morning about whether the corporate cuts will "sunset" in several years, or whether some provisions will be phased in. The tax writers need to make the numbers add up, which means some gimmickry is likely – which will create more complexity and more uncertainty about the out-years.

4. Whatever Happened to Regular Order? This refers to a deliberative process – hearings, markup, amendments, official scoring, etc. But the Ways and Means Committee may pass its bill IN ONE DAY next week, setting in motion a steamroller that will annoy "good government" types who want this process to slow down. It will, once it hits the Senate.

5. President Trump Will Keep Butting In: Did the president really suggest yesterday that abolition of Obamacare should be in the tax bill? Inserting an issue that radioactive could add weeks to the process in the Senate. This trial balloon was shot down even at the White House, but make no mistake – Trump, even from Asia, will micromanage.

6. The December Train Wreck: We're surprised more people aren't talking about the very real threat that Democrats could blow up the budget process in early December. The current temporary funding deal for fiscal 2018 expires on Dec. 8, when the GOP will need votes from Democrats to keep the government open. But Democrats are adamant – if there's no resolution of the Dreamers issue specifically and immigration more generally, they will withhold their votes for a budget. This could become a huge distraction for the tax bill.

BOTTOM LINE: We're sticking with our odds of a 55% chance that the tax bill will pass, but but some major potholes loom. We continue to believe the final bill will not be as grand as Trump envisions, especially if phase-ins prevail. But the headline for the markets hasn’t changed: the likelihood huge corporate tax cuts and the resulting impact on earnings.

November 1, 2017

Tax Bill Is Off to a Rocky Start; Lucky Janet Yellen, About to Get Fired

IT'S BEEN A DIFFICULT WEEK, and it's only Wednesday. Terrorism in New York, the Mueller indictments, and now there are signs that the House Ways and Means Committee is having trouble producing a tax bill. And, oh yes, Janet Yellen apparently will get fired tomorrow.

NOT WHAT TRUMP WAS PLANNING: An ISIS-inspired attack in America's biggest city will require more than just rhetoric from the president – a huge distraction just as it becomes clear that Robert Mueller is methodically assembling a case that will go much higher up the chain of command. These two developments will dampen the campaign-style rollout of a tax bill which – incredibly – still isn't ready after months of secret deliberations.

FROM WHAT WE CAN TELL, the tax writers haven't agreed on a lot: state and local taxes, 401(k) contributions, the estate tax, a new top individual rate, whether to phase in corporate tax cuts, the size of the child care credit, how to set rules for pass-through corporations. You've got to be kidding – Nov. 1 supposedly was the roll-out date, and all of these issues are still unresolved ??

TWO MAJOR CONCLUSIONS: First, the bill will require significant horse-trading next week and beyond, as the House struggles to pass a bill by Thanksgiving; this will be a work in progress and make no mistake – everything is negotiable. Second, the final product may NOT be a simpler code, which was a major objective. On issue after issue, such as the state and local tax, there will be complicated split-the-difference deals that will keep the tax accountants very busy.

THE TIMETABLE: Conspicuously absent from this debate is the Senate, where a tax bill may not emerge until late this month. Finance Committee Chairman Orrin Hatch undoubtedly will wait to see what emerges in the next few weeks in the House; he may produce a bill after the Thanksgiving break. It is extremely doubtful that a House-Senate agreement will come in 2017; enactment of a bill is still likely – later in the winter.

THE BIG HEAD-SCRATCHER: As Trump boasted yesterday, the economy and the stock market are both surging – so we continue to wonder: is a huge tax cut really necessary? Tax reform is a different issue; tax reform on a wide range of provisions strikes us as a very good idea, long overdue. But is a tax cut that will lose $1.5 trillion really needed for a growing economy with a 4.2% unemployment rate?

THIS WILL BE AN OBVIOUS ISSUE FOR THE NEW FEDERAL RESERVE CHAIRMAN, who apparently will not be Janet Yellen. Dismissing Yellen – probably tomorrow – mystifies us; she has done a superb job. Apparently Yellen is not sufficiently opposed to regulations while Jerome Powell is. 

YELLEN SHOULD BE GRATEFUL: She'll go out on top, widely praised for engineering an economic recovery and presiding over a historic stock market rally. She won't have to grapple with reducing the Fed's balance sheet, and she won't have to repeatedly hike rates – as Powell will – in response to full employment, a huge tax cut and soaring deficits. Lucky Janet Yellen, getting out just in time.

DISCLAIMER: Horizon Investments, LLC is an SEC-registered investment adviser. The views expressed are those of the author, Greg Valliere, and do not necessarily reflect the views of Horizon Investments. They are subject to change, and no forecasts can be guaranteed. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. Horizon Investments is not soliciting any action based on this document. In preparing this document, the author has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. Investing involves risk, including the possible loss of principal and fluctuation of value. For more information about Horizon Investments, contact us by calling 866.371.2399 or visit our website at