The ongoing thoughts from Greg Valliere, the Chief Global Strategist for Horizon Investments, who has been a great resource to us with his insights to politics & the ramification on financial markets.
September 29, 2017
Initial Tax Bill Reaction – Thud; A Health Bill is Moving; The U.S. Vs. Canada
HERE COMES THE BLOWBACK: The scanty details in this week's tax proposal have generated a firestorm of opposition – not enough to doom a bill, but illustrating how difficult – and time-consuming – it will be to enact tax legislation.
SOME OF THE CRITICISM WAS PREDICTABLE: Abolishing the state and local tax exemption, for example, was always going to be controversial. But the big take-away – potentially a huge albatross for Republicans – is that the proposal would give only modest tax cuts to the middle class while clearly benefiting the wealthy.
THIS IS POLITICALLY RADIOACTIVE, not just because of unanimous opposition from Democrats, but because the Steve Bannon populists are outraged over a proposal that dramatically cuts taxes on business and seemingly gives fresh tax breaks to the very wealthy. Let's be blunt – this is politically suicidal for the GOP establishment; it gives Bannon the opening he's been looking for.
HOW TONE-DEAF IS WASHINGTON? Private jets for Cabinet secretaries is one thing, but cutting the top tax rate from 39.6% to 35% would be an egregious mis-step, one that will have to be corrected as the bill gets marked up this fall. President Trump, who promised that the rich would not benefit, will have to insist on changes.
WHY THIS IS CRUCIAL: Public attitudes will harden quickly. If the media flogs a narrative that the tax proposal is a giveaway to the rich, that narrative will get set in concrete within weeks if not days. Clueless comments from Gary Cohn, the ex-Goldman Sachs official, haven't helped. He proclaimed that if the middle class gets a net $1,000 tax cut, that could help pay to remodel a kitchen or buy a car. No – an extra $1,000 won't go far.
DOES THIS MEAN THE TAX BILL IS IN TROUBLE? Too early to make that call, but the initial reaction was not good. Aside from the impact on middle class taxpayers, there's an uproar over abolishing the state and local tax break – with perhaps two dozen GOP House members from high-tax states indicating they might oppose the entire bill. And there's a fierce blowback from lobbyists representing several industries, especially homebuilding.
MUCH OF THIS CAN BE REMEDIED as tax-writers alter this proposal once a budget resolution is passed in mid-October; this week's proposal was simply an opening bid. But fixing this will be a time-consuming process. So at the least, one disturbing take-away for the markets is that there isn't possibly enough time to make all the necessary changes this year; the debate could drag well into 2018.
OVERLOOKED STORIES: The focus on tax reform and football players and Puerto Rico has obscured several other major stories. Here are just four –
1. With the the Trump administration reluctant to hit China with trade complaints, a new pinata has emerged: Canada, hit by a stunning 220% tariff on its Bombardier aircraft, stemming from a case brought by Boeing, which now faces retaliation from Canada.
2. A bipartisan health bill is moving in the wake of this week's failure. A proposal from Lamar Alexander (R) and Patty Murray (D) would aid health insurers who may have to hike premiums dramatically in 2018, and other Obamacare fixes could be attached to their measure. Trump desperately wants a victory? Here's one for the asking.
3. Jared Kushner's failure to disclose his use of a private email account to conduct White House business will become a very hot potato as the probe by special counsel Robert Mueller shifts into another gear. This Russia probe is not going away; it's only going to get worse for the White House as critics howl to Kushner: "Lock him up!"
4. To end on a positive note, check out an important column by David Ignatius in this morning's Washington Post. He makes a compelling case that a Korean conflict is not imminent, as the President prepares to visit Asia in November for crucial talks with the Chinese.
September 28, 2017
The Tax Reform Rollout – Don't Sweat the Details Yet
FIRST OF ALL, we would caution against taking yesterday's document as definitive; it simply begins negotiations on several key provisions that may be altered in coming months. The big news for the markets is that tax cuts are very much alive and should clear several key hurdles this fall.
AS FOR THE DETAILS – THE WINNERS AND LOSERS – today's Wall Street Journal summarizes them nicely; no need for a long slog here on specific provisions, largely because they are negotiable once the political process sets in. The key issue, in our opinion, is whether Republicans in both houses can withstand the blowback from populists on the right and left.
THE OBAMACARE DEBACLE gives us pause, because Republicans have virtually no margin for error in assembling majorities in both houses. As we wrote yesterday, the GOP is at war with itself, as angry populist Steve Bannon becomes a major force, complicating the Republican establishment's agenda – including tax policy.
HERE'S WHAT HAPPENS NEXT: There are two major themes to watch – first, progress on procedural hurdles, starting with a budget resolution, then hearings on the tax bill in the Ways and Means Committee, and markup of a bill that could get to the House floor by Thanksgiving. There clearly will be progress in October; the House Freedom Caucus, so frequently obstructionists, announced yesterday that it will not oppose this process.
THE SECOND THEME IS MORE IMPORTANT: How strong will the pushback be on the state and local tax break, on the overall cost of the bill, on a potential tax cut for the wealthy, on the estate tax, on a possible negative for housing, etc.? This initial tax proposal now enters the spin zone, and the reaction – from the media, lobbyists, tax experts and ordinary voters – will be crucial. Watch the polls.
DURING THIS PROCESS, CHANGES TO THE PROPOSAL ARE INEVITABLE: In this new populist climate, we simply do not see a 35% top rate in the final bill, and plenty of other changes are likely. The horse trading will continue in the Senate late this year and in a House-Senate conference committee in early 2018; the issue of deductibility of debt alone could take weeks to resolve.
SO OUR HUMBLE ADVICE TO INVESTORS is to focus on the big picture: the details may be in flux, but a tax cut of at least $1.5 trillion is likely, with significantly lower rates for corporations and pass-through firms, and modestly lower rates for individuals. The markets will like the final bill; they have rallied on the expectation that lower tax rates and stronger GDP are coming, and both of those outcomes still seem likely.
September 27, 2017
The Republican Party Crack-up: Some Major Implications
ANTI-WASHINGTON INSURGENTS, led by Steve Bannon, have all the momentum – and the Republican establishment has fresh reasons to fear gridlock in Congress as the party begins to split in two. This is a very big deal.
A BAD DAY FOR MITCH McCONNELL: The Senate majority leader threw in the towel yesterday on Obamacare replacement; he was a pinata in Alabama, where a radical conservative won last night; and he lost a trusted ally, Sen. Bob Corker, to retirement. (A personal note – Corker is one of the brightest, most sensible, most likable members of Congress we have ever met, a reasonable man in a polarized city.)
THE PARTY SPLITS IN TWO: On one side is the Washington establishment, well-funded by the Chamber of Commerce, which supports free trade, business tax breaks, an interventionist foreign policy, deep non-defense spending cuts and a compromise on immigration.
ON THE OTHER SIDE, the insurgent populists hate free trade, don't want tax breaks for the rich or corporations, oppose foreign entanglements, dislike entitlement cuts and are determined to build a wall with Mexico.
WHICH SIDE IS DONALD TRUMP ON? The president has been looking a step slow; he didn't understand the political dynamics at play in Alabama, he didn't grasp the severity of the disaster in Puerto Rico, he got boxed into a rhetorical corner on Korea, etc. He's smarting, reportedly furious at his advisers and, of course, eager to blame McConnell for just about everything.
WHAT DOES ALL OF THIS MEAN FOR TAX CUTS? We think Trump will side with Bannon and the populists, which will complicate efforts to pass a tax bill that's being written by the Washington establishment. The Paul Ryan Republicans want tax cuts for everyone, while Trump opposes cuts for the wealthy; perhaps a compromise will lower the top rate of 39.6% to something like 37% or 38% – not the 35% that Ryan wants. Other compromises are do-able, but they will take time.
WHAT A BOON FOR THE DEMOCRATS, who have done little to deserve this victory by default. They they now get to face a divided GOP in 2018, with more insurgent challengers in GOP primaries, which will raise this fundamental issue: if Republican voters oust GOP moderates in Nevada, Arizona and Mississippi for far-right alternatives, can those candidates win in the general election? The House already is in play, and – incredibly – the Senate may be as well.
IN THE MEANTIME, the inescapable conclusion as Corker leaves and Moore wins is that the Republican Party is at war with itself on everything from the debt ceiling to NAFTA. On issue after issue, neither McConnell nor Ryan have the votes to prevail – unless they seek help from Democrats, which would only infuriate the activist base.
A NIMBLE PRESIDENT could navigate this turbulence – but Trump is taking on water, unable to win on Capitol Hill and not convincing anyone that he's doing a terrific job in Puerto Rico. And now he has to deal with a party that’s splitting in two.
September 26, 2017
Tax Reform Drive Begins Tomorrow
NO ONE CHANGES THE SUBJECT better than Donald Trump, who would like divert attention away from three failures – Obamacare repeal, a likely landslide defeat for his candidate in Alabama tonight, and the disaster in Puerto Rico. So his focus will shift tomorrow to tax reform, an issue the GOP absolutely, positively has to win.
THE LONG SLOG ON TAXES will begin with a rollout tomorrow by GOP officials – the "Gang of Six" – followed by a Trump rally in Indiana that will focus on the tax proposal (and, we suspect, the NFL – a divisive issue that Trump has exploited masterfully in states like Indiana).
ON TAXES, IT'S ALL ABOUT THE DETAILS, and there may not be many tomorrow. We don't expect legislative language from the "Gang of Six" – just a broad-brush blueprint: a top corporate rate of 20%, a top rate of 25% for pass-through firms, repatriation of earnings stashed abroad, and tax cuts for everyone – including the wealthy.
THE PROBLEM WITH THESE BASICS is that GOP populists – headed by Steve Bannon – are opposed to tax breaks for the wealthy, and the public doesn't want tax cuts for corporations. Trump has to worry about alienating populists, who will hit him with a smack-down in Alabama tonight.
A LIKELY LANDSLIDE IN ALABAMA for Roy Moore against a Trump-supported candidate will send a clear message to establishment Republicans: back off your support for free trade and corporate tax goodies, which are favored by Mitch McConnell and Paul Ryan – who are pariahs among Republican conservatives. Bannon has become a major force within the party.
DESPITE THESE DIVISIONS, we think chances for a tax bill are far greater than they ever were for health reform. A bill could pass in the House Ways and Means Committee before Thanksgiving, and the Senate could pass tax reform this winter. (A budget resolution has to come first, and that's weeks away.)
THE TAX OUTLOOK IS STILL AN UNABASHEDLY POSITIVE story for the stock market, which views lower corporate rates – especially for small cap companies – as a huge plus. We agree, but the generally upbeat market outlook is clouded by Korea. U.S. intelligence officials expect still another North Korean missile test within the next few days, as the threat of miscalculating into a war continues to increase.
September 25, 2017
An Exceptionally Difficult Week Looms For Trump – Health Reform, Taxes, Alabama, Korea
THERE'S SO MUCH IN THE NEWS that many of the stories may get lost in the shuffle – but make no mistake, this is shaping up as a very difficult week for President Trump, with significant implications.
THE HEALTH REFORM HOT STOVE: How many times will Republicans touch this hot stove? There aren't enough votes in the Senate to pass repeal and reform – just enough to pass repeal. The bill got sweetened this weekend for Maine and Alaska, blatant attempts to get "yes" votes from Sens. Susan Collins and Lisa Murkowski, but we continue to believe the bill will fail; even Ted Cruz is having second thoughts.
THIS IS SHAPING UP AS ANOTHER EMBARRASSMENT for a party that promised for eight years to kill Obamacare. The Republicans should either give up or consider a compromise deal with Democrats later this year. In the meantime, a loss would complicate tax reform; it would further alienate Trump from GOP leaders, so he will micromanage and second guess the tax writers.
READY FOR THE TAX ROLLOUT THIS WEEK? Steve Mnuchin is a bright and wealthy man who knows little about tax policy and getting legislation enacted. Earlier this year he vowed to get a bill passed by August, now he's promising a bill by year-end, perhaps with a retroactive effective date for individuals. The higher he sets the bar, the more the administration will disappoint investors.
THE SIMPLE FACT IS THAT HOUSE TAX WRITERS aren't ready to unveil legislative language this week, just a summary. And even a summary has divided the GOP – will the bill reject any tax breaks for the wealthy? How much will the bill cost? What about effective dates? These and dozens of smaller issues have not been resolved, which is why enactment of a tax bill is still months away.
BETTING ON THE WRONG HORSE: It looks like Trump's favored candidate in Alabama, arch-conservative Sen. Luther Strange, will lose tomorrow night in a GOP primary against Roy Moore, who is way to the right of Strange. If Moore wins the seat, there will be two major implications: still another major irritant for Mitch McConnell, who supports Strange, and a wave of far-right challengers to the GOP establishment in 2018 primaries, making it even more difficult for the party to unify and pass legislation.
THE NFL CONTROVERSY: Trump's profane rant against football players has unified the entire NFL; even his buddy Bob Kraft of the New England Patriots ripped him. Perhaps Trump needed political cover, in light of looming losses this week, plus the disclosure of Jared Kushner's private email account, and the abysmal response from Washington to a horrific humanitarian crisis in Puerto Rico.
WHATEVER THE REASON, Trump once again has provoked a divisive debate on race, perhaps energizing his base, but this distraction is hardly what he needs when facing issues like North Korea, health reform, taxes, etc. We respect the emotions that are stirred by the flag, but it looks just a little hypocritical coming from Trump, who used the most common draft dodge of the Vietnam War – heel spurs – to avoid service, and still shows no respect for the sacrifice made by a true war hero, John McCain.
NORTH KOREA, THE REAL CRISIS: This is the Big One, and the markets may be too sanguine. Our thinking is as follows: it's inevitable that North Korea will launch another missile and test more nuclear weapons, and based on the rhetoric from Washington, Trump almost has to respond. Our greatest fear is that a miscalculation from Trump or Kim Jong-un will lead to a war. Maybe the chances of a major conflict are 25%, hard to say – but the chances most definitely are not zero.
September 21, 2017
Donald Trump's Comeback
IT WAS A LOW BAR TO CLEAR, but President Trump's job approval numbers are beginning to climb amid signs in Washington that he's generating fear among Republicans because of his unpredictable style.
IN GENERAL, TRUMP'S NUMBERS HAVE CLIMBED from the mid-30s to about a 40% approval rate – still very low by recent presidential standards – but a case can be made that he has stopped the hemorrhaging after a disastrous summer, capped by Trump's post-Charlottesville comments.
THERE ARE SEVERAL REASONS why Trump's numbers have ticked higher; the main one, in our opinion, has been the government's solid handling of hurricane disasters and his show of empathy, which never was a Trump strong suit. He also benefits from a decent economy and the surging stock market.
BUT THE BIG WILD CARD has been Trump's willingness to reach across the aisle and deal with Democrats; this is overwhelmingly supported by the public, which wants bipartisanship and hates the Washington dysfunction. Several polls, including one in this morning's Wall Street Journal, give Trump high grades for bypassing the unpopular GOP leadership.
AND THAT HIGHLIGHTS THE MOST IMPORTANT DYNAMIC in Washington politics today – Trump is more popular than anyone in Congress other than John McCain, clearly more popular than the hapless Mitch McConnell and Paul Ryan, and more popular than any Democrat in office. This gives him leverage.
HERE'S THE GREAT IRONY: Trump is widely loathed in Congress, but lawmakers – especially in his own party – fear him. Republicans from deep red states are reluctant to blast him because if they do, they could face a serious primary challenge from a Trump supporter. Let's not forget – nearly 80% of Republican voters still support Trump; most of that 80% is enthusiastic and unshakable.
TRUMP'S BASE DOESN'T CARE that the president tweeted out a rant earlier this week, just as he went to the United Nations, blasting the Emmy awards show. Trump's base doesn't care about the Robert Mueller investigation, which quite clearly is heating up. And his base thinks most of the media's leaks on Russia are irrelevant or fake.
TRUMP'S LEGIONS OF DETRACTORS in this city still can't accept that in recent polls, Trump beats Hillary Clinton in a one-on-one race. His detractors still can't accept that there is no Republican likely to beat Trump in 2020 primaries should he decide to run again (he probably will).
TRUMP SURELY REALIZES ALL OF THIS, which is why he's so furious with congressional Republicans who defy him, so he has totally scrambled the playbook and is willing to deal with Democrats. And if that strategy succeeds – if he can break the DC logjam – his job approval numbers will climb even higher.
September 20, 2017
Signs of Life – Tax Legislation Coming Into Focus
THERE'S A LONG AND WINDING ROAD AHEAD, but tax reform legislation is beginning to stir as two central themes come into focus: the bill will not be revenue-neutral, and it will reject significant tax cuts for the wealthy – including abolition of the estate tax, which is rapidly losing support.
DONALD TRUMP, TAX POPULIST: Steve Bannon may be gone, but his influence persists. He is an outspoken opponent of any further tax cuts for the wealthy, a theme the president apparently will embrace. The Washington Post reports this morning that Trump and some Republicans favor keeping the top rate close to 39.6%, with little if any change in the estate tax, which kicks in for inheritances above $5.49 million.
THE MAIN GOAL FOR THE WHITE HOUSE appears to be significant corporate tax relief, and it's possible that Trump could win a reduction in the top rate from 35% now to something close to 20% – which would be a bit more generous than appeared likely just a few weeks ago. As for Trump’s embrace of individual tax cuts targeted largely to the middle class, the Democrats will believe that when they see it – but there clearly has been an attitude shift by Republicans in Congress, who are getting a loud message from the White House populists.
THE DESIRE FOR A TAX BILL is so intense among Republicans that the party's longstanding opposition to higher deficits is wavering. That was the clear message as the Senate Budget Committee began work yesterday on a budget resolution that would authorize tax cuts that would lose revenue on paper – but would assume much stronger economic growth and, theoretically, gain revenues in the long-term.
COULD THIS VIOLATE BUDGET RECONCILIATION RULES? Perhaps, but Republicans are willing to embrace big tax cuts now, betting that future Congresses and presidents will extend them when they expire in ten years as stipulated by budget reconciliation rules that apply to revenue losses.
THE TIMETABLE: A budget resolution could pass in the Senate by early October, after still another time-wasting Obamacare replacement debate ends by late next week. (A predictable pushback has begun against a last-ditch health bill, so we'll stick with our prediction of just a 40% chance that it will succeed.) Also by late next week, House Ways and Means Committee Chairman Kevin Brady should release a fairly detailed tax proposal (it's unclear whether it will contain specific legislative language).
SO THERE WILL BE SIGNS OF LIFE AS OCTOBER BEGINS, and Brady could get a bill through his panel by Thanksgiving. This would persuade the markets that a tax package could win enactment by late winter or early spring – an optimistic scenario, perhaps, but if there's agreement on the big themes – the assumed price tag and who gets most of the benefits – then the tax writers can drill down on details in the next few months.
SOME ANALYSTS, INCLUDING MANY WE RESPECT, have proclaimed for the past few months that a tax bill will probably die – or be exceedingly puny. We disagree on both points, and see a consensus starting to form. This could be a decent-sized tax cut, lowering corporate and individual rates, adding a few tenths of a percent to GDP growth next year – just as the mid-term elections approach.
September 19, 2017
Four Major New Themes – A BIG Tax Cut; Mueller Closing In; Crisis With Iran; Obamacare Repeal
SUMMER ENDS LATER THIS WEEK, and the narratives on several key stories are changing. We list four huge issues that will dominate Washington this fall:
1. A REALLY BIG TAX CUT: The consensus this summer was that a tax cut must be modest and revenue-neutral. But that has shifted as lawmakers ask – why can't we have massive corporate and individual cuts, and why do they have to be paid for?
AN ARTICLE IN THIS MORNING'S WALL STREET JOURNAL confirms what we've been hearing for the past couple of weeks: Congress could authorize a huge tax cut, perhaps $1.5 trillion (or more) over ten years, and if it's a revenue loser, well . . . the tax cuts can expire at the end of ten years. Tax cut proponents are betting that a future Congress and president would extend them.
THIS EMERGING STRATEGY would diminish the need to kill sacred tax breaks, a process that could bog down a tax bill later this year. Democrats would howl that a huge tax cut without revenue offsets would blow a hole in the deficit, but Democrats won't have much of a say, if any, on taxes. The key will be Republicans, who are eager to write a budget that would authorize a big tax cut, not a modest one.
2. MUELLER CLOSING IN: Robert Mueller was quiet this summer, but he has assembled an all-star team of pit bull lawyers who have several Trump associates in their sights. Indictments of Michael Flynn and Paul Manafort seem likely; the latter reportedly was wiretapped, which raises the question of whether conversations between Manafort and President Trump (or his inner circle) are on tape.
COULD MUELLER INDICT TRUMP? A really crucial issue this fall. Most legal scholars believe a sitting president cannot be indicted; impeachment would be the more likely route. But we continue to believe there aren't enough votes in the House to impeach or in the Senate to convict – GOP majorities in both houses would have to change dramatically in the 2018 elections, which seems unlikely.
TRUMP WILL BLAST a "witch hunt" and "fake news" leaks from Muller's team, but it seems that the president faces – at the very least – politically damaging indictments of people formerly close to him who may cooperate with prosecutors in an effort to avoid jail time. Mueller's probe will become a dominant issue this fall as Trump bets that the American public tires of this issue.
3. THE NEXT GEOPOLITICAL CRISIS – IRAN: North Korea may have to share top billing with Iran, as a deepening crisis with the U.S. looms; Trump and his generals want to alter or rescind the 2015 deal cut by Barack Obama. Iran's hard-line ayatollahs are likely to challenge the U.S. in the Persian Gulf with naval skirmishes that will provoke Trump. We don't anticipate all-out war with North Korea, but we could envision confrontations this fall with Iran.
4. OBAMACARE REPEAL STILL POSSIBLE: The big story on Capitol Hill this fall won't be the debt ceiling or a government shutdown threat – those issues won't percolate for a few more months. The surprise of the fall is that proponents of Obamacare repeal are within striking distance of winning, replacing it with block grants. The key lawmaker, as usual, is John McCain – fresh from winning a huge Senate increase for defense spending.
McCAIN IS WAVERING IN HIS OPPOSITION TO KILLING OBAMACARE, as is Lisa Murkowski of Alaska. If only Rand Paul and Susan Collins oppose this latest plan, there might be a 50-50 tie that Mike Pence would break. This has to be done by a Sept. 30 deadline, and we think there's a 40% chance that the Senate could hand an enormous victory to Trump.
TRUMP IS STILL MADDENING, with his juvenile tweets and daily shifts on immigration policy, but he's very much a force to be reckoned with – and feared, if you're a Republican with a primary next year. Trump's presidency was nearly off the rails this summer, but he's showing signs of life, and his signature issue – big tax cuts – is still very much alive.
September 18, 2017
The Most Dovish Fed in Our Lifetimes
THERE ARE MANY REASONS FOR THIS REMARKABLE BULL MARKET RUN, but perhaps the biggest factor is exceptionally loose monetary policy, which is not likely to end any time soon. The Federal Reserve will confirm this week its explicitly-telegraphed move to begin winding down its balance sheet, but the bigger story will be the sudden ambivalence among the central bankers for another rate hike this year.
HOW CAN THE FED BE SURE A RATE HIKE IS NEEDED IN DECEMBER when still another major hurricane looms? Along with Harvey and Irma, a potential hit by Maria will make a shambles of economic data for months to come – first a clear GDP slump, then a sharp pickup, but that's hardly certain for an economy that was growing only modestly before the storms hit.
INFLATION DOESN'T APPEAR TO BE A THREAT, aside from gasoline, which is a transitory factor. The Fed cannot conclude that its 2% inflation target is within range, and of course there's another uncertainty – fiscal policy issues in December, as a 2018 budget deadline will lead to the usual hype about a government shutdown. At least a debt ceiling crisis has been avoided until next spring.
AMID ALL THESE MOVING PARTS, we would expect Janet Yellen to hedge in her press conference this Wednesday, stressing that the fundamental economy is sound enough to begin some tapering of the balance sheet. But we expect Yellen and her colleagues to adopt "dots" that imply a very slow pace of inflation and interest rate hikes in the next couple of years.
EXCEPTIONALLY LOW INTEREST RATES have kept the economy afloat and provided the fuel for the stock market rally; thanks to these low rates, equities still look far more attractive than fixed income. In fact, we would argue that there are only three scenarios that could derail this bull market:
1. A recession. Chances: 10%. There isn't one in sight, not with unemployment at 4.4% with an urgent need for more labor to help rebuild Houston and Beaumont and Florida.
2. A collapse of the Trump agenda. Chances: 20%. If anything, things are looking better for Trump; even a last-ditch effort to kill Obamacare and replace it with block grants to states has a chance of moving this week. And tax cuts will begin to advance in committees later this year.
3. A Korean war. Chances: 25%. This is the Big One, the only scenario that keeps us awake at night. Kim Jong-un is playing with fire; the U.S. has in place a plan to demolish his missile sites in strikes so quickly that they could minimize damage in the South. We think the most likely scenario is for more sanctions and an uneasy stalemate, but that's hardly a certain scenario.
BOTTOM LINE: There's always a wall of worry for the markets, but the one constant in recent years is that this is the most dovish Fed in our lifetimes, largely responsible for a dramatic improvement in the labor market, which in turn has kept the rest of the economy chugging along with no recession in sight. One measly rate hike this winter, now in doubt, will not change that scenario.
September 14, 2017
Trump Freelances on Taxes and Immigration – GOP Establishment is Stunned
THIS IS WHY HE GOT ELECTED: Donald Trump promised to shake things up, to break the logjam, to get things done. He has been infuriated by the GOP congressional leadership's inability to help him, so he has rocked this city to its core by freelancing with Democrats on taxes and immigration. And he will get things done.
LAST NIGHT'S STUNNING PROGRESS ON AN IMMIGRATION DEAL, plus Trump's heretical suggestion that taxes might have to increase for the wealthy, can be viewed two ways: First, he has given up on Mitch McConnell and Paul Ryan; second, he wants deals – any deals – and the details aren't particularly important. There's truth to both of these narratives.
THERE'S AN EXCELLENT CHANCE OF A DEAL on immigration, with a compromise on Deferred Action for Childhood Arrivals (DACA) that gives children of illegal immigrants a path toward citizenship – an unthinkable outcome for immigration hard-liners, who reacted furiously yesterday as Trump moved in that direction without insisting on a wall with Mexico as part of the deal. This is potentially "a full-fledged cave," Breitbart proclaimed.
THE BIGGER STORY FOR THE MARKETS is Trump's sudden flexibility on taxes. Veteran Republican tax wonks – the Wall Street Journal editorial page crowd – are incredulous that the president is willing to consider tax hikes on the wealthy. "He's taking charge of the negotiations," one source told us yesterday, perhaps because Trump has lost faith not just in Ryan and McConnell – but in Gary Cohn and Steve Mnuchin as well.
WHAT DOES THIS MEAN FOR A TAX BILL? Trump's kick in the pants has motivated the plodding GOP Congress; the House Ways and Means Committee Chairman, Kevin Brady, will unveil a tax plan in the week of Sept. 25 and may get a bill through his panel by late October. Congress has to pass a budget resolution first, which would pave the way for tax cuts, but the House Freedom Caucus – obstructionist as usual – may balk unless there are details on the tax plan.
THE LOOMING INFIGHTING IS TOO COMPLICATED for Trump – he understands that what matters for the markets and his political base is that a tax bill is about to move. The markets don't care whether it passes in December or March; the markets just want to see movement, and that's coming. Corporate tax cuts are likely, and that would be very positive for earnings, especially for small cap companies, since most of them pay close to the 35% top rate.
BUT THE OTHER DETAILS OF A TAX BILL will get caught up in a free-for-all. If the Democrats really get a seat at the table, cherished GOP goals – such as abolition of the estate tax – might get negotiated away by Trump. If he has to abandon the wealthy, giving them virtually no tax cuts…well, the president wants deals, his own party be damned.
September 13, 2017
What We're Hearing From Clients
OVERVIEW: It's crucial to get outside of the Beltway and meet with real live clients – professional investors and retail clients, whose opinions we greatly value. Here's what they are telling us:
THE ECONOMY CONTINUES TO SURPRISE: For the first time in memory, we have encountered NO clients who worry about an imminent recession, none. There are two camps – those who think the economy will continue to grow moderately, and those who think it will accelerate. No one agrees with the dystopian view of Steve Bannon; the only missing ingredient to this Goldilocks consensus is the stubborn inability of wages to significantly increase.
AN UPTICK IN SUPPORT FOR DONALD TRUMP: Even his detractors agree that Trump had to do something last week, since Paul Ryan and Mitch McConnell weren't getting the job done. Trump's deal with "Chuck and Nancy" gets higher grades than we thought; instead of criticizing the president for abandoning GOP principles, the consensus is that he was elected to break logjams, and he's doing it. Plus, Trump gets good grades for leadership on hurricane relief.
WHAT'S IMPORTANT ON TAX REFORM: Virtually everyone we talk with wants tax cuts, but there's ambivalence if reform kills cherished tax breaks like the mortgage deduction. Many clients are apprehensive about big changes, but they're focusing primarily on the effective date. Most investors think it won't come this year, but they're unsure of what to tell clients about when – or if – tax changes will become effective, and that uncertainty is becoming an irritant.
FRESH WORRIES ON FISCAL DISCIPLINE: Clients have always been more alarmed by surging deficits than the Washington politicians or the bond market, and now there's genuine alarm that fiscal restraint seemingly has been abandoned. Retail clients in particular worry that the nearly $20 trillion national debt could threaten the bull market by the end of this decade. Trump is widely viewed as indifferent to deficits.
INTEREST RATES AREN'T MUCH OF AN ISSUE: There's no concern about the Fed's almost-certain announcement later this month that its balance sheet will begin to shrink. That move has been explicitly telegraphed to the markets. Many retail investors are hoping for higher interest rates, but the pros are beginning to wonder whether Janet Yellen will raise rates in December. There's a widespread belief in both camps that rates will rise only gradually in the next few quarters.
IMMIGRATION POLICY MAKES NO SENSE: A wide majority of investors agrees that there's an acute labor shortage that makes it difficult for business to find skilled and unskilled labor. The president's goal of reducing legal immigration makes no sense, most investors agree; how can economic growth top 3% when there aren't enough workers? Harvey and Irma have made the point – the country needs more workers to rebuild Texas and Florida, but there's a labor shortage.
WE CAN LIVE WITH KOREAN INSTABILITY: The pros agree that the greatest threat to the markets is a war in Korea, but they believe this will simply be an ongoing irritant, with occasional jitters as North Korea tests missiles and nuclear weapons. There's surprising complacency on Korea; retail and professional investors alike do not anticipate war.
THE RUSSIA PROBE IS WAY BENEATH THE RADAR: Everywhere we go, we hear the same refrain – the Russian probe is a waste of time, fueled by a media that hates Trump. Some retail clients in the San Francisco area or in New York City would like to see impeachment, but the vast majority of investors we talk with believe an impeachment threat is far-fetched. We'll see what Robert Mueller comes up with, but for most investors this dog won't hunt.
WHAT TO WORRY ABOUT: These generally upbeat attitudes are not without concerns. Trump's tweets are widely viewed as childish and un-presidential. There's widespread anxiety that retirement policy is shaky – Social Security faces a growing crisis, many corporate pension plans are underfunded, and several states face serious actuarial problems. And then there's an issue that has traumatized much of Middle America: heroin and fentanyl abuse, which seemingly defies a solution.
BOTTOM LINE: What stands out, when talking with investors, is the widespread optimism that economic conditions are improving. Yes, many investors think Trump is a jerk, but they look past him and focus on the fundamentals – and what's not to like, when great fundamentals have propelled the stock market to record highs?
September 12, 2017
Guess Who's Coming to Dinner; Debt Ceiling Surprise; Jerry Brown For President?
GUESS WHO'S COMING TO DINNER: President Trump has invited three moderate Democratic Senators to dinner tonight at the White House with a handful of Republican moderates. The topic: tax reform. Trump is impatient, he wants a tax bill this year, and he apparently thinks some Democrats will align with him.
BUT THERE ARE TWO HUGE PROBLEMS: First, there's no bill !! No bill from the White House, no bill from Paul Ryan, no bill from anyone. How Congress can pass a tax bill by December when there's no legislation pending is a mystery to us. Second, even moderate Democrats are reluctant to endorse a tax bill unless it's modest, revenue neutral, aimed exclusively at the middle class, and relatively stingy on business tax cuts.
TRUMP'S CHANCES OF GETTING A TAX BILL that he likes will depend on Republicans, not Democrats. This dinner will send a signal to the plodding GOP that they could be bypassed if they don't start moving, but the differences between the two parties on taxes border on the theological. Trump may wheel and deal with Democrats on spending issues, but a tax deal is much less likely; he probably will have to wait until spring until Republicans finish work on his tax bill.
DEBT CEILING SURPRISE: Mitch McConnell has been on a losing streak, but he still has a few tricks left. He apparently inserted a provision in the three-month budget extension passed last week that would give the Treasury Department flexibility to juggle accounts and avoid hitting the debt ceiling for several months past the Dec. 8 deadline set in the just-passed measure.
McCONNELL TOLD THE NEW YORK TIMES yesterday that his provision will take a debt ceiling showdown off the table in December, depriving the Democrats of a trump card in budget talks just before Christmas. There still will be fireworks in December over a 2018 budget and funding for a wall with Mexico, amid the usual hollow threats of a government shutdown, but Trump will deal with the Democrats again if he has to.
FOR THE MARKETS, a budget train wreck looks much less likely this year; another debt ceiling crisis could emerge in the spring but give Trump credit – he understands the public's frustration with this issue, which creates uncertainty for business, investors and consumers. So he will cut more spending deals, bypassing hard core conservatives in the House who want fiscal discipline.
JERRY BROWN FOR PRESIDENT? Sick of seeing the nation's largest state reduced to irrelevancy in picking a president, California lawmakers will strike back. A bill making California's primary the most dominant in the early voting season – just after Iowa, New Hampshire, Nevada, South Carolina etc. – is expected to pass this week and Gov. Jerry Brown has indicated he will sign it.
WHOEVER WINS THE CALIFORNIA PRIMARY would be in the catbird's seat for the nomination, so this naturally has fueled speculation on who will run. Three names keep popping up: Sen. Kamala Harris, almost certain to run and the insiders' pick to become the nominee; Los Angeles Mayor Eric Garcetti, who also is a near-certain entrant and Brown, who is fit but 79.
BROWN HAS TOLD ASSOCIATES that he hasn't ruled out running. He's easily one of the most fascinating, different politicians in the past several decades – derided as "Governor Moonbeam" for his eccentric views as he became California's youngest governor ever, Brown is now considered a pragmatist as the state's oldest governor ever; he's well to the right of the state's very liberal legislature. Brown is a no-nonsense, disciplined, tough-talking professional politician – and for the media he is very, very good copy.
September 11, 2017
The Spigots Open in Washington
WHAT A PERFORMANCE BY FEMA AND FLORIDA OFFICIALS: As of this writing, there was only one confirmed fatality from the ferocious Irma; everyone from Donald Trump to local first responders gets huge credit. Now comes the hard part – rebuilding damaged, mold-filled homes from Houston to Miami, which will cost billions of dollars.
AS WE WROTE LAST WEEK, FISCAL HAWKS HAVE BEEN ROUTED: They ground the House to a virtual halt with their demands that the debt ceiling increase must be accompanied by big new spending cuts. Trump is an impatient man, and it became clear to him that aligning with Democrats – even temporarily – would break the gridlock. That, of course, is why he got elected in the first place.
NEXT COMES AN ASSAULT ON SPENDING CAPS: Regular business on Capitol Hill will be suspended today because of the storm, but by mid-week Congress will debate scrapping the rigid spending caps known as the sequester. The impetus will come from defense hawks, led by Sens. John McCain and Tom Cotton; they want to authorize $640 billion for the Pentagon in fiscal 2018, an astonishing rise from $549 billion this year.
McCAIN ALWAYS ASKS FOR MORE THAN HE GETS, but there's little doubt that to get even a smaller number for defense, the budget caps will have to go. And in the new Washington climate, Democrats will join in the negotiations, pushing for relief from caps for domestic programs.
HARVEY AND IRMA ARE THE CATALYSTS: Legislation to raise the debt ceiling, increase spending, protect the Dreamers, etc. will be tied to hurricane relief – and who wants to oppose hurricane relief ?? The House Freedom Caucus, hard-liners on spending, has been routed; a new majority consists of all Democrats and most mainstream Republicans – and Turmp, who is savvy enough to sense what the public wants. The public wants action, not gridlock.
TRUMP MANIPULATES THE MEDIA ADROITLY, despite his scathing criticism of the press, and he got it right last week by cutting a deal with "Nancy and Chuck," his new allies. He even called both Nancy Pelosi and Chuck Schumer to remind them that the press coverage was great after their deal. So there will be more such deals.
THERE WILL BE THE INEVITABLE DRAMA THIS FALL, as Congress moves tentatively toward a debt ceiling deal, a fiscal 2018 budget, and a budget resolution; the latter, which would authorize tax cuts, could come within a month. The overriding theme will be an abandonment of fiscal restraint, as Trump and the Democrats – neither of whom care much about deficits – transform the political landscape in the wake of Harvey and Irma.
September 08, 2017
The Collapse of Fiscal Discipline
DEFICIT HAWKS ARE STUNNED, abandoned by Donald Trump, and now they face an odd alliance between the president and Democrats – who will extract a price for cooperation, and that price will a surge of new spending. The budget deficit, already climbing, is headed dramatically higher.
TRUMP HAS NO BIG ISSUE WITH DEBT, and why should he? With inflation still tame, the Treasury 10-year bond yield has plunged to nearly 2%, a message to him that deficits aren't a crucial issue – yet. He believes that tax cuts and infrastructure spending that lose money are acceptable if they stimulate economic growth.
THAT ATTITUDE PLACES TRUMP IN ALIGNMENT with most Democrats, who agree with the Steve Bannon view that forgotten Americans in places like Youngstown, Ohio, need not just jobs but jobs that pay well. Without rising wages, the fallback is Keynesian spending and tax cuts for the middle class – music to the Democrats' ears.
CONGRESSIONAL REPUBLICANS ARE HORRIFIED, and once again there's speculation about Paul Ryan's tenure as House Speaker; he could lose an incredible 100 GOP members in today's debt ceiling/hurricane aid vote that should pass because of overwhelming support from Democrats and Trump.
HOUSE DEFICIT HAWKS HAVE AN EVEN GREATER WORRY: They may lose one of the few instruments to restrain spending – the debt ceiling bill, which they thought would contain some curbs on outlays. But Trump, amazingly, hinted to Nancy Pelosi and Chuck Schumer that he could support an elimination or modification of the debt ceiling approval process.
LET THE DEAL-MAKING BEGIN !! Trump will get his huge boost for the Pentagon, the Democrats will wiggle out of spending caps for domestic outlays like NIH funding, and Trump will further alienate his base by capitulating on the dreamers, who will not face deportation. But he needs something in return – funding for border security, assurances on infrastructure and, of course, tax cuts.
THE SHORT-TERM ISSUE FOR THE MARKETS isn't deficits; interest rates may not respond for another year or two, as red ink approaches $800 billion annually by 2020 in an essentially full-employment economy – not a comforting scenario if you worry about inflation. But that's a long-term concern; the short-term issue is what all of this means for tax cuts.
DESPITE RYAN'S BRUISED EGO, he knows that a significant tax bill is still possible – even though he may not like all of the details if Democrats get involved; significant tax cuts for the wealthy look much less likely. But Ryan needs a win, Trump needs a win, and the Democrats need a win.
THIS BIZARRE MARRIAGE OF CONVENIENCE will have its limits (leftist Democrats don't trust Schumer) but the big new policy trend in Washington – even less discipline on spending – could provide enough money for everyone to enjoy a pork-filled tax cut, with something for everyone – except the deficit hawks, who just got rolled.
September 07, 2017
The Stunning Bromance between Trump and Democrats – Five Implications
INCREDULOUS MEMBERS OF BOTH PARTIES are ripping up their playbooks in the wake of Donald Trump's deal with Democrats yesterday that kicked the can for three months on the debt ceiling and a budget. Republican lawmakers wanted an 18-month extension; now they have a pre-election albatross that Democrats will exploit relentlessly.
TRUMP AND CHUCK SCHUMER reportedly shared an awkward man-hug in the Oval Office yesterday, and that sent shock waves through this town, where the mere suggestion of bipartisanship is derided as naive. Five huge implications:
1. Tax Reform Just Got Tougher. By delaying huge budget issues until a new Dec. 8 deadline, proponents of a tax bill will get a little time this fall to at least come up with a legislative text. But the idea of enacting a tax cut by year-end, always far-fetched, is dead. The President's point man, Steve Mnuchin, was humiliated yesterday – cut off by Trump virtually in mid-sentence; how can Mnuchin credibly deal with Republicans on a complex tax bill when they know he might get undercut at any moment?
2. Trump Really Isn't a Republican. Party veterans, conservative activists, fiscal hawks and foreign policy hardliners are grappling with this stunning revelation: Trump really isn't a Republican and has virtually no loyalty to GOP lawmakers, who he regularly mocks. The public thinks the Republican Congress is dysfunctional, and Trump is happy to reinforce that impression – so the party's electoral prospects in 2018 and beyond will continue to deteriorate.
3. The Democrats Have Been Rescued from Oblivion. We thought Chuck Schumer was in the witness protection program this summer, virtually absent from the fray – but now he and Nancy Pelosi have a seat at the table. Trump might understand real estate deals, but he's a rube when it comes to dealing with Congress. The Democrats want more spending, no tax cuts for the rich, and protection for the "Dreamers" – and those goals now look attainable in a mega-deal this winter.
4. What Other Issues Go Bipartisan? We're reluctant to proclaim that Kumbaya now reigns; Schumer is mindful that activists in his own party will rebel if he gets too close to Trump. But we have to conclude that Trump's inner John Maynard Keynes will emerge in spending deals, with a renewed focus on infrastructure pork in 2018. A Dreamers deal is likely, and a trade-off could emerge on taxes: Democrats will agree to cuts and reform for business, but the individual tax relief will go almost entirely to the middle class. Cherished tax breaks will survive.
5. McConnell and Ryan – Humiliated Again. We have to wonder, in all seriousness, how much longer they can continue as Republican leaders. Like most Congressional Republicans, they loathe Trump and the feeling is mutual. Trump has a perfect foil; Ryan and McConnell are on notice that they have to produce and will be mocked and abandoned if they don't.
BOTTOM LINE: The American public doesn't care about Inside the Beltway maneuvering; the public wants results and bipartisanship. Trump understands this, and he is fully prepared to cynically reject his own party. If this breaks the legislative log-jam, that would be a huge plus for this embattled president. He could win some badly needed style points, even if Democrats prevail on policy.
BUT THERE WILL BE A PRICE TO PAY: Increased policy uncertainty, never a plus for the markets, is certain. Trump really doesn't care about policies; he cares about victories for Donald J. Trump. And for the hapless GOP congressional leadership, they now know Trump will abandon conservative principles whenever it's politically convenient.
September 06, 2017
Two Hurricanes Will Have a Dramatic Impact on Policies
TWO OF THE MOST DESTRUCTIVE HURRICANES in recorded history, Harvey and Irma, will have a major impact on many of America's most pressing issues – extending the debt ceiling, spending levels, immigration, regulations, and climate change. Our quick take:
DEBT CEILING: A potentially serious crisis for the financial markets – the threat of a federal debt default – probably will be avoided as a debt ceiling increase is attached to hurricane relief. How convenient !! Members of Congress who had vowed to resist raising the debt ceiling now have cover – who could possibly block spending for hurricane victims? The irony is that Treasury Secretary Steve Mnuchin, who adamantly demanded a "clean" debt ceiling hike, will get his increase in a bill that has amendments.
SPENDING: The need for $100 billion – or more – in federal aid for both hurricanes has pretty much blown the lid off any semblance of spending restraint. Hard-line conservatives who want spending cuts will fail, and the annual deficit as a percentage of GDP will soar to 4% or higher – well over $600 billion – in fiscal 2018. Ironically, generous aid to Texas will help residents in a state that is rethinking its rigid opposition to federal spending.
IMMIGRATION: The job of rebuilding Houston, Beaumont, and probably much of Florida will require hundreds of thousands of new workers – except there's a dramatic shortage of construction workers, according to the National Association of Home Builders; 77% percent of its members report acute shortages. Yet policies from the Trump Administration seek to chill immigration – legal and illegal – at a time when shortages of workers is becoming a significant impediment to economic growth. Trump's goal of 3% GDP growth cannot be achieved without more workers – and the hurricanes will reinforce that point.
REGULATIONS: Everyone seems to like the idea of reduced regulations – until there are specific examples that question lax enforcement policies. Exhibit A is the Arkema chemical plant, which had fires in its Crosby, Texas, plant when chemicals became unstable after Hurricane Harvey. EPA is rolling back regulations of such plants, which may enjoy reduced compliance and disclosure despite the hurricanes. Is a toothless EPA really a good idea?
CLIMATE CHANGE: The clear rise in global air temperatures – 2016 was the warmest year in recorded history – has obscured a significant increase in ocean temperatures. Studies from the Lawrence Livermore National Laboratory show a rise of 1-1/2 degrees in ocean temperatures between 1880 and 2012, with a likely sharp increase in ocean temperatures since then.
THE BOILING WATERS in the Atlantic, Caribbean and the Gulf of Mexico provide the rocket fuel for these hurricanes; scientists believe the increase of hurricanes with winds in excess of 150 mph – with astonishingly low barometric pressure – is a direct result of the warmer water. These two monsters, less than a month apart, speak volumes about the role of much warmer ocean temperatures.
BOTTOM LINE: These two incredible storms are having dramatic impacts on policy in ways we don't fully appreciate this morning. They are changing thinking on key policy issues, especially immigration, in ways that no one could have predicted a month ago.
September 05, 2017
How Donald Trump Might Prevail – as Seven September Threats Loom
THE MEDIA IS BREATHLESSLY PROCLAIMING that the fall agenda could doom Donald Trump's presidency and rock the stock market, as his woefully understaffed administration fails to cope with seven major threats. So let's take a contrarian view this morning and look at how September could actually be an opportunity for Trump.
TRUMP HANDLED ONE HURRICANE WELL and now faces another big one. He can build on a solid performance not just with hurricanes, but with seven crucial issues – many of which just might break his way:
1. A threat of war. Chances of U.S. strikes on North Korean missile sites have increased, but in private Trump's generals are urging patience. The president still has cards to play – this morning's Wall Street Journal editorial details several measures short of war that he should take. We think he will embrace those measures.
2. The threat of a federal default. Trump could win a major victory, but he will have to expend political capital – telling his base that a debt ceiling increase must pass. He also could tie the debt ceiling to hurricane aid, as we predicted last Tuesday, which would win enough votes from both parties to swamp opposition from the House Freedom Caucus. Trump is never shy about taking credit, and the inevitable debt ceiling hike could be a victory for him.
3. The threat of a government shutdown. A relatively easy one. Trump can sign a deal just before the fiscal year ends on Sept. 30, relying on a continuing resolution for 2018 spending levels that will prevail until mid-December. Does Trump want a victory on this – or a wall with Mexico, which doesn't have the votes in either house? It's up to him; we'd guess he would take an easy victory on Sept. 30, then look for a deal later in the fall.
4. The threat of more White House dysfunction. The grumbling is getting louder in the Trump inner circle that new Chief of Staff John Kelly has soured on Trump – and vice versa. Trump needs to cool it – Kelly is very solid – and he needs to patch relations with Gary Cohn. Again, whether Trump looks good on this issue is strictly up to Trump.
5. The threat of a breakdown in relations with Congress. Trump has meetings with congressional leaders today and tomorrow, and we think he will reach an understanding with Mitch McConnell and Paul Ryan. He will encourage them to come up with compromises on DACA and budget issues – he'll take a deal, any deal – and we think Kelly will get him to tone down the insults. Hurricanes Harvey and Irma have given birth to a little bipartisanship.
6. The threat that tax reform may die. Another issue where there's upside potential. Since many insiders on Capitol Hill think tax reform is near death, Trump's advisers could breathe life into the fallback – corporate and individual tax cuts, with substantive reform later. Trump needs to show some leadership on this issue, and we think he will later this fall.
7. The threat that the Mueller probe could intensify. Several Trump allies are scheduled to testify at congressional hearings this fall on Russia's involvement in last fall's election. The president needs to clam up on these hearings; whether Kelly can curb Trump's tweeting is doubtful. In any event, impeachment talk has faded, for now.
OF THESE SEVEN ISSUES, there's a potentially decent outcome on fiscal policies, if Trump is willing to work with Congress. But it's difficult to make a case that the Mueller probe will turn out well for Trump – the investigation has intensified, quietly, and while it may not lead to impeachment, it could cripple Trump next year.
THE MARKET IMPACT: The same fundamentals apply – decent GDP growth, tame inflation, steady interest rates, a healthy labor market, and solid corporate earnings. The markets have set a low bar for Trump; they just need him to show a little leadership. If he does, September might not be a disaster – but if North Korea continues to lob missiles toward Japan and Guam, investors may have to confront the unthinkable.
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 www.horizoninvestments.com.