Is Tax Reform A Done Deal? This Is What Wall Street Thinks

Following the backing of Sen. John McCain on the GOP tax reform bill, markets have surged to new all time highs as tax-sensitive banks lead the way, with Bloomberg reporting that odds for the tax bill"s passage may increase to "near-certainty" if the Senate can finish its version in the days ahead, citing Evercore ISI.  And speaking of banks, the KBW bank index is up over 1.3% to the highest since Oct. 2007, outpacing the S&P 500’s 0.7 percent gain. This is just more of the same: since Trump"s election, banks have outperformed dramatically with the BKX up 40% vs S&P 500 +24%; top performers include SIVB (+86%), BAC (+68%); Citigroup (+52%); JPMorgan (+51%).

So at least according to bank stocks - and the market - tax reform appears to be a done deal. This is confirmed by online betting market PredictIt, where odds for a tax deal by the end of 2017 have jumped to 76%, up from 40% three days ago.

 

But do Wall Street analysts agree? As the following summary from Bloomberg shows, opinions range from Evercore"s 75% odds of a deal getting done by Q1 at the latest, with some such as Horizon Investments suggesting corporate tax rate may have to settle at 22% (especially if Trump "blows a gasket"), to pessimists such as Bloomberg Andrew Silverman stating that "the Senate will have tough time passing first stab at ax-overhaul, contrary to equity markets’ expectations for successful reform, as many have doubts about the bill and margin for failure is 2 votes."

Here is a full run down of some analyst views on the state of tax reform, courtesy of Bloomberg.

EVERCORE ISI (Terry Haines)

• Taxes on track for Senate approval in next few days; keeps 75% odds tax legislation happens by early 1Q at the latest; odds may increase to near-certainty if the Senate can finish its version of the bill by the end of this week or early next week


• Sees govt shutdown as very unlikely, with odds at most 10%


• Says don’t be distracted by posturing this week on both sides of the aisle; no one in Washington wants a shutdown, full-year spending deal that keeps govt spending stable, but with small increases for defense and domestic spending has been in negotiations for weeks

HORIZON INVESTMENTS (Greg Valliere)

• The one wild card that could disrupt tax reform process is "the increasingly erratic" President Trump, whose tweets this week (Access Hollywood, Obama’s birthplace, fight with U.K. PM May) have alarmed even his supporters; raises issue as Trump "could blow a gasket" if tax bill fails to give him what he wants for business, corporate rate may have to settle at about 22%


• Calls Corker trigger "a terrible idea"; asks whether tax hikes would be welcome if there’s a recession in next few years, or geopolitical issue; notes corporations may find it difficult to make long-term plans if their lower taxes are threatened by Corker amendment

COMPASS POINT (Isaac Boltansky)

• Still believes Senate will clear its tax package this week


• Then, House could consider the measure, pass it in early December, or there may be conference cmte that may bleed into 2018


• Sees conference as likelier path; keeps 75% odds of package being enacted regardless of procedural road ahead

COWEN (Chris Krueger)

• Congressional GOP has seemingly made calculation that "passing nothing on taxes is worse than passing something" 


• Notes "dueling" bills are receiving waves of negative news coverage across Trump and Clinton state papers


• Two questions remain: Tax trigger mechanism, how to pay for "new policy candy" to secure 50 votes

BLOOMBERG INTELLIGENCE (Andrew Silverman)

• Senate will have tough time passing first stab at ax-overhaul, contrary to equity markets’ expectations for successful reform, as many have doubts about the bill and margin for failure is 2 votes


• Too many uncertainties remain to predict a quick passage, and senators won’t know what they’re voting on until after "vote-a-rama," when the bill is rapidly amended on the floor


• Sees debate stretching into 2018

Source: Bloomberg

Three Reasons Why Retail Sales Are About To Disappoint Bigly

On Friday the Department of Commerce will report August retail sales, a material report which all else equal, may influence whether the Fed proceeds with its plans to unveil balance sheet tapering in its upcoming FOMC meeting. However, as we discussed last week, the report, together with virtually all other high frequency economic reports, will be materially distorted by the destructive aftermath of hurricane Harvey (Irma"s impact will be felt in the September retail report).

While Goldman recently showed the historical impact of hurricanes and other natural disasters on virtually every economic data series...

... of particular interest in the coming days will be the biggest driver behind the US economy, namely retail spending, and specifically whether the recent natural disasters led to a sharp - and potentially sustained - slump. According to internal Bank of America credit and debit card spending data released as usual just days ahead of the official government report, there does appears to be a substantial adverse impact. The question is how much of this is secular, and how much is a continuation of recent weakness in retail spending. Further complicating matters is a seasonal quirk, with the August spending report coming at the peak "back to school" spending period, coupled with the recent Amazon Prime Day which led to further distortions in retail spending patterns.

As BofA"s Michelle Meyer calculates, retail sales ex-autos, as measured by BAC aggregated credit and debit card data, declined 0.1% mom seasonally adjusted in August, leaving the 3-month moving average tracking flat for the month. Consumers shifted spending to gasoline stations, which were up strongly in the month, owing in part to Hurricane Harvey.

After controlling for the increase in gasoline spending, retail sales ex-autos and gasoline declined 0.4%: one of the sharpest declines YTD, and a confirmation of the continuing divergence between BofA (blue line) which has hugged the flatline in recent months, and official government data, which while week, has demonstrated modest Y/Y growth.

According to Bank of America, there are three key factors influencing the data this month:

1. Hurricane Harvey;


2. the pull-forward of retail spending into July by Amazon Prime Day; and


3. back-to-school shopping.

In an attempt to isolate the influence of Hurricane Harvey which made Texas landfall on August 25, BofA first examined daily spending in Texas which shows that spending picked up in the days heading into the hurricane but remained depressed through the event and in the days after, as one would expect.

Meyer explains:

We estimate that the net reduction of spending in Texas sliced 0.1-0.2pp from the monthly growth rate of total retail sales ex-autos in August. We then dug deeper and looked at the impact by the type of spend which reveals that necessary items (food and gasoline) increased in the month while more discretionary items declined (Chart 2). We also measured spending by major region in Texas (MSAs) which shows significant decline in Houston but continued growth in regions not hit by Harvey (Chart 3)

The charts below provide further evidence that Harvey caused a net drag to spending in the areas hit directly. In contrast, there was trend-like growth in MSAs in Texas which were not directly impacted by Harvey.

However, it wasn"t just Harvey explaining the sharp drop in ex-gasoline sales. In addition to the adverse reginal impact from Harvey, August retail sales were also likely held
back by the strong success of Amazon Prime-day in July. BofA data shows that Prime Day pulled forward activity from August into July.

Finally, and perhaps most concerning, the third indication that retail sales are set to disappoint, BofA writes that while it did not find much of a story for the back-to-school season, its proxy for back-to-school sales showed growth of just 2.4% yoy, down more than 50% the 5.4% yoy pace last year.

This is a problem because according to the National Retail Federation"s annual survey, families were projected to spend approximately $29.5bn on back-to-school items which would translate to an 8% yoy increase from the prior year"s spending plans. Unfortunately, those spending plans have not translated to actual spending as expectations have once again overshot spending patterns as they did in 2011 and 2012 but were below in 2013-2015.

Finally, broken down by category, BofA finds that on a % mom basis, consumer spending declined in most categories in August with only food and beverage, gasoline stations and cruise showing an increase. As noted above, spending on food and beverage and gasoline stations likely saw a boost due to Hurricane Harvey as households stocked up on essentials.

BofA"s Bottom line: the weakness in August retail sales, already expected to come in at near stall-speed levels, is likely exaggerated by the hurricane and July prime-day.

The good news is that while Hurricane Irma may depress spending in September, retail sales typically bounce back after a natural disaster, suggesting upside into 4Q. Unless, of course, it forces an even greater decline in spending, as the following charts showing the secular decline in retail sales indicate.

Fed Reports Unexpected Collapse In Credit Card, Auto Loan Demand

Two weeks after we reported that the consumer credit card default rate as tracked by S&P/Experian Bankcard had surged to the highest level since June 2013...

... we were looking forward to the latest Fed Senior Loan officer survey for more details about changing loan dynamics within US society.

What the report revealed was troubling: while on the surface, the Loan Officer Survey characterized loans to businesses as "basically unchanged" from the previous survey, it did remark that standards for commercial real estate (CRE) loans had tightened.

According to the report, "banks reported tightening most credit policies on Commercial Real Estate loans over the past year.... On balance, banks reported weaker demand for CRE loans in the first quarter."

More concering was the continued drop in demand for C&I loans among small, medium and large corporations, with "inquiries for C&I lines of credit remained basically unchanged" staying at a modestly depressed rate.

This helps explain, once and for all, the recent collapse in Y/Y commercial bank loan creation, both total and C&I, and indicated that contrary to Goldman"s take, the steep drop has nothing to do with calendarization or a base effect, and everything to do with declining demand for the product among America"s businesses, a concerning deterioration in an economy that is reportedly improving, and where companies would be willing to take out new credit to fund expansion.

Digging deeper revealed an even more distressing picture as a result of a sharp consumer revulsion toward credit, with reduced level of consumer card and auto loan demand in the quarter. The decline took place despite "visibly softer" underwriting standards for cards which surprised some analysts as not creating incremental demand;

Worse, demand for credit cards is now running at the lowest level in the 5 years the survey has provided credit- card-only data for consumer demand.

The report included special questions regarding commercial real estate lending conditions. Tighter credit policies for most CRE loans were the result of "a less favorable or more uncertain outlook for CRE property prices, vacancy rates or other fundamentals on CRE properties, and capitalization rates, as well as reduced tolerance for risk. Significant net shares of banks also reported less aggressive competition from other banks or nonbank financial institutions and increased concerns about the effects of regulatory changes or supervisory actions as important reasons for tightening CRE credit policies." (Emphasis added.)

Additionally, lending for residential real estate reflected little change in standards or demand by consumers. There was also little change to standards or demand for home equity lines of credit. Auto lending standards tightened. It is likely that concerns about the quality of auto loans may be driving some of the more restrictive conditions for lending. For credit card loans, there was some easing of standards and terms were "basically unchanged".

According to Stone McCarthy the contraction in the retail sector has had some impact here as several chains have significantly reduced or eliminated their brick-and-motor presence.

Not surprisingly, as demand for credit bumbled, banks" willingness to lend improved to 10.8 in April after slipping to 3.1 in January.

Finally here are excerpts from several sellside reports, all of which we unpleasantly surprised by the report, courtesy of Bloomberg.

WELLS FARGO (Matthew Burnell) 

• Primary takeaway remains reduced level of consumer card, auto demand vs 3Q after visible drop in 1Q (published in Jan., responses provided in Dec.)


• Notes "visibly softer" underwriting standards for cards aren’t creating demand; demand now running at lowest level in the 5 years the survey has provided credit- card-only data for consumer demand


• Standards across most other loan products were largely stable, though demand for commercial loan and commercial real estate dropped slightly from prior survey and mortgage demand ticked slightly higher (thanks to lower mortgage rates)

JPMORGAN (Daniel Silver)

• Survey was "a mixed bag," with weakening demand for many key series but also easing in lending standards for some major lending categories


• Easing C&I lending standards may be most important takeaway, even as demand declined

BARCLAYS (Jason Goldberg)

• Loan demand across all lending segments generally softened during 1Q, with C&I demand modestly weaker (though inquiries for C&I lines of credit was unchanged); CRE (broad-based), credit card, auto also weaker


• Key reasons included decreases in customers’ investment in plant or equipment and decreases in M&A financing needs


• Tighter lending standards could foreshadow CRE (particularly C&D and multifamily), auto credit quality deterioration; regulators still focused on CRE


• Lists banks most exposed to auto loans: ALLY followed by COF, HBAN, CFG, FITB, while COF, C, JPM, BAC have largest credit card concentration (all >10% of loans); JPM, MTB, COF, KEY have largest multi- family exposure (though all

EVERCORE ISI (John Pancari)

• Survey shows "tempered tone" around growth, largely reinforcing themes observed in recent results, including sluggish demand and credit tightening


• Notes little change in level of inquiries for C&I lines contrasts with 1Q bank mgmt comments mentioning pickup in borrower optimism, new line openings

SUSQUEHANNA (Jack Micenko)

• Trends support Susquehanna’s neutral view of regional banks (BBT, CMA, FITB, HBAN, KEY, PNC, RF, STI, USB, WFC, ZION) as optimism has yet to translate into notable improvement in loan demand

ALERT: Euro impending collapse, but don't worry - FX is simple

Forex is the most simple market in the world.  As we explain in our book Splitting Pennies - Forex is the underpinning of the world"s financial system.  Although it is also the least understood market, there"s nothing "sophistocated" about FX.  Take a dollar, exchange it for a euro.  The rate changes - exchange it back.  Simple!  Trading money.

There is no "2 day settlement" in Forex, a custodian, there"s no Reg D, no Reg NMS - there"s no HFT front running your orders, there"s no "order types" - there"s no exchange rules (because there"s no exchange).  Actually, when you strip away the complexities of most markets like securities, bonds, real estate, commodities, FX is many times over the most simple market.  

Understandably, the securities market is the most widely promoted to investors because of the potential for making high returns from participating in corporate ownership (and thus ownership of profits).  But securities are a derivative.  Investors don"t really own the companies - they own the shares.  And actually to be technical, they don"t own the shares too - they are controlled by a huge custodian DTCC.  The securities, bond, and futures markets are the core of modern capitalism.  But they aren"t a necessity, they are an abstration and thus - have complex rules.  Or to say differently - the banking system needs the real economy - the real economy doesn"t need the banking system.

How do these abstract markets drive inflation?  Here"s how.  QE doesn"t directly go into the economy.  However, by keeping interest rates low, both in real terms and buy the Fed"s various asset purchase programs - it means money has never been cheaper.  With cheap money, it"s easy for i-banks to borrow at zero or near zero rates, invest in any index at 2x or 4x leverage and get their 20% - 40% per year with virtually no risk (that is, no seen risk - there is huge tail risk that one day the market will collapse, which it will for sure, like the big bubble that it is.)  

The "stock markets" have become so intertwined with the real economy, they have made themselves a necessity.  Like a virus that has taken over a host, now it would be practically impossible to kill the market without affecting the overall economy.  All of this has become so complicated, with so many involved parties - it has become a giant spider web.

On the topic of the Fed and their direct stock market alleged manipulation, consider the following.  The Fed is owned by the member banks.  The Fed gives it"s QE to the member banks, almost all of which are now publicly traded companies.  Here"s where the paper trail begins for the "conspiracy crowd" about the Fed being owned by nefarious 13 families:  Public disclosure rules mean that anyone can lookup what"s going on at Bank of America (BAC).  Hiding significant information at public companies is very difficult, and becoming more and more difficult with the digitization of records, communications, and basically all aspects of business, which by the way is all "doubled" and recorded on a network level by ATT (T) another public company - and stored in an NSA database.  America Inc. is technically a corporation and the states such as South Carolina are more like countries (hence the name "states") - although you can"t buy and sell shares of America Inc. you sort of can, it"s called immigration - citizens of USA are sort of like shareholders.  And there"s a short side too, record numbers of US Citizens are giving up their citizenship.  So, does the Fed manipulate the stock market?  It"s not a fair question, because Fed ownership and operations are completely intertwined with the stock market.  During the time when the Fed was created, America was just passing the wildcat banking era, where there were thousands of private banks.  Do not confuse "private banking" with a "privately owned bank" - private banking is discreet services for rich people who may want to hide their assets or not let others know how rich they are.  Privately owned banks are nearly non-existant in the USA today, for a number of reasons - mostly caused by generational wealth transfer and generally a trend towards the institutionalization of assets.  What does that mean?  It means that 100 years ago, things were in YOUR name, if you were JP Morgan or Andrew Carnegie.  Today, it"s all in tax havens, the Carnegie foundation, trust funds, and almost nothing is in YOUR name.  That includes banks, which are mostly publicly traded and thus, publicly owned.  The individual has become obsolete.  

So all these tendencies, make the market so complicated it"s even confusing to describe.  

All this drama created by Nixon is really in the eye of the beholder - this idea of "economic collapse" is a fantasy promulgated by religious types in armaggedon style packaging, as if the Earth will explode and burn in a big singularity event.  The reality is that "economic collapse" is happening every day, simply that only some of us notice it.  

Forex simply guages the tides as they ebb and flow, EUR/USD rate changes, but not really that much.  Brexit gave us a 9% move which is huge for FX but not really statistically significant in the grand scheme of things.

Take a look at EUR/GBP for last 10 years:

This is a monthly chart.  You can see why FX is not interesting for the general public.  But it takes a lot less time to understand FX than the stock markets.  FX is simple.

As we head into a potential complete meltdown of the Euro, and tomorrow"s NFP, we"re heading into an event that may change the face of FX forever.

Dear Trader, With the upcoming second round of the French Presidential Election this weekend, we require that your account balance plus any open profit or loss covers at least 3% of the total notional exposure across all EUR crosses and EUR Equity Index CFDs by 4pm (UK time) Friday, 5th May 2017. Where the cover is lower than 3%, we may reduce your positions to increase the cover on your account before the market close. Exit polls will be released prior to the market open on Sunday, 7th May 2017 and there is increased risk of wide spreads and large price gaps on the market open and through the night. Please ensure you are comfortable with the exposure on your open positions leading into the market close on Friday, 5th May 2017. If you have any queries, please do not hesitate to contact Client Services by calling +44 20 3192 XXXX or emailing XXXXXX. FX and CFDs are leveraged products that can result in losses exceeding your deposit. They are not suitable for everyone so please ensure you fully understand the risks involved. Kind regards LMAX Exchange Client Services Team

To get a primer on what this FX is all about and how it"s really more simple than any other market - checkout Splitting Pennies - Understanding Forex.

Trump And The Age Of Magical Thinking

Authored by Christopher Whalen via The Institutional Risk Analyst blog,

“Anyone taken as an individual is tolerably sensible and reasonable – as a member of a crowd, he at once becomes a blockhead.”

Friederich von Schiller, quoted by Bernard Baruch

The term "magical thinking" refers to how children believe that their thoughts have a direct effect on the rest of the world.  So last week we learned that the Trump Bump is not real. Lower taxes, increased spending, these were never really serious goals, but merely political talking points.

Charles Gasparino and Brian Schwartz of FoxBusiness also suggested that the proposed cut in corporate taxes would instead mutate into a repatriation scheme a la Argentina and Italy.  Corporate tax cuts are dead, but "a percentage of the money returning to the U.S. would be used to finance an infrastructure fund to build the roads and bridges that President Trump has recently been touting,” they report.

This is bad news for Wall Street, where lower corporate taxes have been a key underpinning for the recent exuberance.  As the Don mutates before our very eyes, his promise of big things and thus the outsized impact of same on financial markets will also change – and dramatically.

President Trump’s change of mind on corporate tax cuts certainly goes against the happy consensus view.  The move in the stock market from the latter part of last October to the beginning of March 2017 can only be described as a speculative episode, to paraphrase John Kenneth Galbraith. As he wrote in A Short History of Financial Euphoria:

“Regulation and more orthodox economic knowledge are not what protect the individual and the financial institution when euphoria drives up prices, and to the eventual crash and its sullen and painful aftermath. There is protection only in a clear perception of the characteristics common to these flights of what must conservatively be described as mass insanity.  Only then is the investor warned and saved.  There are, however, few matters on which such a warning is less welcomed.”

Indeed, while the raging bulls raised up Bank of America nearly 60% in four months and pushed the yield on the S&P 500 below 2%, the reality of the Trump Administration and its truly conventional nature was becoming apparent.  The big statements and big ideas are abandoned without remorse as the President seeks leverage, to paraphrase our friend Jim Rickards.

A key takeaway from earnings so far is that we have confirmation of a slow-down in lending and a related slowing of the economy.  Retail is also in a downward phase, although the stalwart optimists in the crowd believe that the numbers will improve later in the year.  And Chinese GDP beats expectations. 

The other obvious takeaway from earnings is that we’re pretty deep into the current credit cycle.  If anything, the Fed should be thinking about mild easing.  But instead Janet Yellen & Co are trying to “normalize” rates as the economy slows.

The chart below shows yield on the 10-year Treasury bond less the yield on the 2-year Treasury note.  Not only are interest rates falling rather than going up, but the yield curve is also flattening as the difference between long and short interest rates is squeezed.  This is not a bullish chart needless to say.

But even less encouraging is the juxtaposition of real GDP and the federal funds rate, an important chart that reorients your thinking about just where we are in relative economic terms and in particular the definition of “normal.”  The chart below shows these two relationships and suggests to us that getting short-term rates to 3% is going to be a near impossible task. 

We are waiting to hear from BAC this week to see just how our favorite zombie girl justifies those impressive forward estimates for revenue and earnings growth.  More than any of the top banks, BAC has reduced operating costs and positioned the bank for growth – this after years of bloody, slow-motion restructuring.  But rising interest rates will not help bank earnings, especially when interest rates are going down.

Readers of The IRA will recall that we took the view after 2008 that BAC should have put the parent holding company through a Ch 11 bankruptcy to accelerate the restructuring process.  But today, fact is, the bank’s selling, general and administrative expenses start with a “5” as in $54 billion rather than a “7” as in $72 billion in 2014.

With a 16% estimate for 2017 earnings and 21% for 2018, its does not take a lot of imagination to see why BAC moved as far and as fast as it did, but that’s all over now as the song says. The promises by Donald Trump during  the 2016 election have been replaced by conventional thinking and even more conventional people to think them. 

Witness reports from Politico that President Trump is expected to nominate former Treasury undersecretary Randy Quarles as the Federal Reserve"s top bank regulator. Quarles is a big time members of the establishment, a veteran of the George W. Bush administration and is a managing partner at equity investment firm The Cynosure Group.   

“I don"t think the folks who voted for Trump thought they were voting for Randy Quarles, although I like the Dickensian name,” notes one DC insider.  “Quarles is a Bushie and could be weaker than Tarullo."

CompassPointLLC opines  politely that “Our sense is that Mr. Quarles will be viewed as a pragmatic deregulatory force.”  But Washington’s premier investment bank avers that “tax reform expectations in D.C. continue to temper. Our view remains that political and policy realities will slowly grind broad tax reform efforts into a narrower tax relief package with corporate rates of 25-28%.”

So the good news and the bad news rolled up together is that the Trump Revolution is over.  All of the talk of change, tax cuts and new policies is rapidly giving way to a very conventional Republican Administration populated by bankers from Goldman Sachs.  To get a good bearing on President Trump, think of the first term of President William McKinley combined with the latter years of Ulysses Grant.

For Wall Street, the end of the Trump Revolution portends a return to the October 2016 status quo ante, with all of the attendant difficulties and discomfiture.  We can’t say for sure that BAC will go all the way back to $16 per share, where it started its remarkable journey last October. But even at the $22 close on Thursday, BAC was still trading below book value, a remarkable, even magical commentary in these increasingly conventional times.

BofA Finds Surging Consumer Confidence Does Not Result In Higher Spending

While markets are closed tomorrow for Good Friday, the Census Bureau will release both CPI and Retail Sales data at their regularly scheduled times. And since it will be impossible to trade these numbers as they are released, here is a courtesy advance look from Bank of America which as usual has released its internal debt and credit card data in advance of the government report. What it found is that while there has been a slight improvement to the surprisingly poor data from recent months, it is nowhere near what one would expect based on near record consumer confidence surveys.

As BofA"s Michelle Meyer writes, according to the BAC internal card data, consumer spending improved in March relative to the weak pace in February. The bank"s estimate of retail sales ex-autos, derived from the aggregated credit and debit card data, increased at a 0.4% mom seasonally adjusted pace in March - the highest print in nearly a year - even as gasoline prices declined on a seasonally adjusted basis in March. While Meyer notes that this points to "healthy growth in core control retail sales released by the Census Bureau on Friday", she cautions that "the gain may not be quite as strong given that the BAC data had been trending below the Census and was therefore due for a bounce higher."

Furthermore, the monthly pattern has been particularly noisy of late – sales fell sharply in December (-0.9%), rebounded in January (1.6%) but slipped lower in February (-0.1%). There gave been a number of “special factors” which influenced retail sales, including the timing of the Christmas and New Year’s holidays and the delay in tax refunds which likely delayed spending from February to March. Therefore
it is prudent to smooth through the wiggles – on a three-month moving basis, retail sales ex-autos are up 0.6% mom, while retail sales ex-autos are up 4.5%

And while retail sales point to a modest improvement, Meyer writes that the potential rebound is nowhere near close to matching "the dramatic improvement in consumer confidence", which is also Bank of America"s Chart of the month.

To put it into perspective, the Conference Board measure of confidence has reached the highest level since December 2000 while earlier today the University of Michigan hit highest since November of the same year. Putting 2000 in comparison, back then retail sales ex autos were running above 7% yoy and in 2007, about 4% yoy.  BofA"s take:

While we think there are fundamental reasons for higher confidence – low unemployment rate, increasing wage growth, low borrowing costs and solid stock market performance – we believe that part of the increase in confidence reflects expectations for fiscal stimulus. In our view, there is a rocky road ahead for tax reform which we believe could trigger a partial reversal in confidence. Meanwhile, we expect actual spending to continue to grow at only a moderate pace.

It also means that, as cautioned here repeatedly, the soft data has now plateaued, and is rushing to converge with the "hard" data to the downside.

Some other observations:

don"t expect a sharp rebound in northeast spending.

• The Northeast was hit by a blizzard during the week of March 12th, dropping several feet of snow in parts of the region.


• We can see the impact of the storm in our card data. We find that card spending in the Northeast exceeded the rest of the country in the days heading into the storm as households presumably stocked up with necessities in preparation.


• This was offset by a meaningful drop in card activity during the storm. On balance, we estimate that the blizzard served as a very slight drag on overall spending in the month

Restaurant spending remains recessionary

• Spending growth at restaurants has generally been on a downward trajectory, increasing only 3.2% yoy in March.


• Part of this weakness reflects difficult year-over-year comparatives. As you can see from the month-over-month changes, spending at restaurants is still increasing on a sequential basis, but at a slower pace than last year.


• There was also an unusual swing at the turn of the year where spending was down sharply in December but climbed higher in January. We suspect this may reflect the timing of Christmas Eve and New Year’s Eve which both fell on Saturdays, therefore distorting the typical weekly spending patterns.

Finally, 4 more charts showing that whether it tracks confidence or not, the US consumer has seen far better days.

Eric Mindich's $12 Billion Eton Park Is Returning Capital To Investors: Here Are His Biggest Holdings

Once upon a time Eric Mindich was best known for being the Goldman "wunderkind" - the youngest-ever Goldman partner, who parlayed his reputation into the 2004 launch of his hedge fund Eton Park. Unfortunately for Mindich, after over a decade of running other people"s money, the hedge fund apocalypse caught up with the ex-youngest partner, and after a year of losses, which led to an exodus of investors from Mindich’s $12 billion Eton Park Capital Management, which fell about 11% last year, the hedge fund is now said to be returning capital to investors.

According to Bloomberg, Eric Mindich, whose hedge fund startup in 2004 was among the largest in the industry, is returning client capital after 13 years.

Mindich, 49, plans to return all outside funds in New York-based Eton Park Capital Management because he doesn’t believe he’ll be able to run a global, multi-disciplinary investment firm under current conditions, according to a person with knowledge of the matter.

Readers may recall Eric Mindich for two other notable accomplishments: as we first reported back in September 2009, Mindich was none other than the president of the infamous Plunge Protection Team, as discussed in  "What Is Goldman Alum Eric Mindich"s Role As Chair Of The Asset Managers" Committee Of The President"s Working Group?"

The other notable event involving Mindich was the 2011 report that he was among the hedge fund managers getting direct inside information about the fate of Fannie and Freddie ahead of their bailout, from none other than Hank Paulson, as we discussed in "Hank Paulson Tipped Off The Goldman-Led "Plunge Protection Team" About Fannie Bankruptcy 7 Weeks In Advance."

Paulson... went on to describe a possible scenario for placing Fannie and Freddie into “conservatorship” -- a government seizure designed to allow the firms to continue operations despite heavy losses in the mortgage markets."

The gathering comprised some of Wall Street"s most storied investors. Mindich, a former chief strategy officer of New York- based Goldman Sachs, started Eton Park in 2004 with $3.5 billion, at the time one of the biggest hedge-fund launches ever. [Dinakar] Singh, a former head of Goldman"s proprietary-trading desk, also began his fund in 2004, in partnership with private- equity firm Texas Pacific Group Ltd. Lone Pine"s [Stephen] Mandel worked as a retail analyst at Goldman before joining Julian Robertson"s Tiger Management LLC, one of the most successful hedge funds of the 1980s and 1990s. He started his own firm in 1997. [Daniel] Och was co-head of U.S. equity trading at Goldman before founding Och-Ziff in 1994. The publicly listed firm managed $28.9 billion in November. One other Goldman Sachs alumnus was at the meeting: Frank Brosens, founder and principal of Taconic Capital Advisors LP, who worked at Goldman as an arbitrageur and who was a protege of Robert Rubin, who went on to become Treasury secretary.

In other words the point of the meeting was nothing short of the former Goldman CEO telling all his former Goldman colleagues just what he was planning on doing in his capacity as Treasury Secretary.

In any case, while we await details as to how this formerly high-flying Icarus crashed so low, here are his biggest holdings:

it is worth noting that NXP, MSFT, and BAC - some of Eton Park"s biggest holdings, tumbled on Tuesday, and one wonders if Mindich was the big redemption mentioned earlier this week by Mohamed El-Erian.

The Four Key Themes From Q4 Conference Calls

In its quarterly Beige Book publication, Goldman conveniently gathers anecdotal evidence of fundamental and thematic trends from the earnings transcripts of companies in the S&P 500. As Goldman"s Davis Kostin explains, since President Trump’s surprise victory over Hillary Clinton in November, investors and management teams have been acutely focused on the new administration’s policy proposals. In this Beige Book, we focus on management commentary regarding four key pillars of the Trump Administration’s agenda: tax reform, regulation, fiscal spending, and trade policy.

Here are the summary highlights:

• Tax reform: Managements are optimistic about potential n corporate tax reform, but are concerned about the controversial border-adjusted tax. Lower corporate taxes represents a potential tailwind to corporate earnings, but our US Economics team expects comprehensive tax reform may be delayed until late 2017 or early 2018. Selected examples: BBT, BXP, CAT, CB, CVX, JNJ, PFE, PNC, UPS, and UTX.


• Regulation: Hopes for widespread deregulation and improved regulatory clarity are increasing confidence among some management teams. Selected examples: BBT, BXP, CMCSA, COP, CVX, MA, MO, PAYX, PX, and T.


• Fiscal spending: Managers of industrial firms are enthusiastic about potential infrastructure spending and a possible end to the defense sequester. President Trump proposed a $1 trillion infrastructure plan in his presidential campaign, but we expect the actual spending package will be $25 billion per year. Selected examples: AEP, AET, DGX, FDX, JNJ, LMT, LUV, and PX.


• Trade policy: Management views are mixed on whether President Trump’s trade proposals will be constructive or will lead to damaging retaliation from US trade partners. Selected examples: CB, HON, MS, NKE, and PYPL.

The latest quarterly report contains excerpts from 39 companies that account for 18% of total S&P 500 revenues and 23% of the S&P 500 equity capitalization. All management comments on the following pages were taken verbatim from company transcripts as recorded by CallStreet and accessed via FactSet.

1. TAX REFORM

S&P 500 management teams are optimistic that corporate tax reform and a reduction in the statutory corporate tax rate will boost earnings and make US companies more competitive with international competitors. Investors and management teams have been analyzing key provisions of the GOP tax plan including a reduction in the statutory corporate tax rate, the controversial border-adjusted tax, repeal of net interest deductibility, full capital expensing, and a deemed repatriation of overseas earnings at a preferential tax rate. Our US Economics team believes tax reform is likely, but legislation may not pass until late 2017 or early 2018.

General

• Chevron Corporation (CVX): And we all know that our tax system is not competitive. We want American companies to be able to compete, and so there’s a lot of work being done to try to bring down corporate rates so that we can compete both at home and abroad for capital. And of course, the administration has a focus on bringing jobs and capital back to the U.S., and lower rates will help that. In my view, they’re looking for pay-fors. They’re looking for ways to make those lower rates happen. And so they’re looking at a variety of different concepts. And the truth is there are a lot of different ideas being floated right now. And I think they’re looking for input, and we’ll continue to provide it.


• BB&T Corporation (BBT): It will take a little while for it to get going, but look, we’re going to have lower taxes, less regulation. It’s really a big deal. Optimism is up, I’ve been talking a lot to clients, and to our RPs, regional presidents in the last several weeks, including yesterday, and clearly CEOs are optimistic, they’re making plans to invest, and we really think this is going to kick-in to a meaningful improvement in investment and job growth as we head into the second and third and fourth quarter.


• Pfizer Inc. (PFE): I’d like to point out that the most impactful thing with tax reform will be to level the playing field between U.S. companies and foreign companies in regards of the foreign companies not having the tax advantage of acquiring companies and then taking it to a low-tax location. So that’ll be a fundamental change in competitiveness. To the extent that tax changes would make it cheaper for us to access financing, then you’re quite right. Some deals that previously would not have been affordable, may now be affordable.


• United Technologies Corporation (UTX): Certainly, tax reform is the biggest single item that we’re focused on this year... Well, first of all, we’ve obviously been following the Trump administration closely in terms of what you’re talking about on tax reform. And it looks like we’re going to be following the Chairman Brady blueprint out of ways and means which would lower the top rate to somewhere around 20%, eliminate the deductibility of interest but also provide for immediate expensing of capital. Also provide for a territorial system which is really good news for us because, as you know, we’ve got about $6 billion in cash sitting overseas that we can bring back to the U.S. very cost effectively.


• Caterpillar Inc. (CAT): I think you can probably get your mind around the idea that the second half of the year probably has the most upside. All the things that we’ve talked about, tax reform, better economic  growth. That’s certainly not impacting what’s on the books, getting produced and shipped here early in the year... So I think if there’s upside, it’ll probably come later in the year, particularly if we start seeing better economic growth, we get tax reform kind of nailed down so people actually know what’s coming. The more that happens, the sooner the better.


• Johnson & Johnson (JNJ): As both sides in the aisle in Washington have noted, the U.S. tax code for business is outdated and in many cases makes the U.S. a more costly place to do business, leaving U.S. workers and the U.S. economy at a disadvantage. We are very encouraged by the proposals currently in discussion and will support business tax policy that is competitive with most developed countries and encourages innovation and growth. This includes a system based on territorial taxation in line with most economically developed nations.


• Amgen Inc. (AMGN): [President Trump] talked, I think, publicly when we were with him about the need to look at areas of reform, tax reform, regulatory reform, intellectual property protection, trade policy. So all of those, I think, are encouraging for us.

Reduced statutory rate:

• BB&T Corporation (BBT): So right now, the corporate rate’s 35%. In essence, we get almost 90% of it for a given tax rate change. So tax rates fall from 35% to 15%. We would get close to 18% lower taxes on it. The reason we don’t get all of it is really driven by how our state taxes impact the change in the corporate tax rate. But we get the vast majority of it.


• U.S. Bancorp (USB): But to keep it simple, if we saw a tax – a corporate tax rate decline of 10%, we would expect our effective tax rate to benefit or go down by about half of that, or about 60% of that. So think about 5 percentage points to 6 percentage points in that range. That’s essentially what we would expect to see the change in our effective tax rate, and it’s because of the various dynamics associated with how tax credits work.


• General Electric Company (GE): And I think what GE wants, and what we think is most important competitiveness for U.S. companies, is essentially a competitive tax rate, something that looks more like the OECD average, which is roughly 21%, 22%, and this notion of territoriality that you pay the tax in the jurisdiction that you actually earn it. And then from there, those earnings are fungible and can move cross border. Quest Diagnostics Incorporated (DGX): With the majority of our taxable income earned in the United States, we could benefit from any material reduction in U.S. corporate tax rates. We would expect to use a portion of potential tax savings to invest in accelerating growth.


• FedEx Corporation (FDX): The bigger issue for all of you to look at longer term for us is the features that are in the GOP blueprint and President-elect Trump’s plans that we like a lot, and those include  materially lowering the tax rate, the effective territorial treatment of foreign earnings, and current expensing of CapEx. We think that will positively impact our top line through stronger economic growth and, of course, the bottom line potentially in a very big way through the lower tax rate... But if you think about our tax rate this year in the 36% to 37% range, a 20% tax rate would be a mighty fine Christmas gift.

Border Adjustment tax:

• FedEx Corporation (FDX): ...We are concerned about the border adjustability concept and are trying to figure out how it would affect us directly, as well as our customers and trade and global growth, in general... This is just very destructive of trade. It’s not the proper solution to the problem. I think if they lower the tax rate and went to territorial, it would accomplish 95% of all the benefits they’re looking for and ignite a significant investment boom in the United States. It would solve the inversion problem.


• Pfizer Inc. (PFE): So regarding the connection between tax reform, manufacturing, and bringing jobs back, we are not – as an industry, we’re interested in highly qualified workforces that have been trained, and – but we’re driven by the tax code today to manufacture outside of the United States. If there is no penalty by the border adjustment for manufacturing inside the United States to supply your markets outside of the United States, that will encourage us to put more jobs in the United States... I think the Republican leadership has overall tax changes that are overall favorable for the pharmaceutical industry. Certainly would allow us to create more jobs in the United States. And I don’t really think that we would feel that the changes as being proposed are negative for our industry – far more positive, in fact.


• Delphi Automotive PLC (DLPH): I’ll give out some numbers. I’m happy to discuss numbers... this border tax adjustment is really not known at this point. I think there’s sort of three sentences in a 13-page document that is what a lot of people are keying off of. But round numbers, our cost of sales value for imported materials into the U.S. is about $4 billion. The majority of that is out of Mexico, about $3.5 billion, and we’ve talked about that back a couple of months ago when tariffs were sort of the topic of the day.


• Procter & Gamble Company (PG): That said, there’re a few facts that might be helpful. P&G produces 85% of the product that it sells in the U.S. domestically and we export about 10%. So a net import balance of only about 5% of U.S. sales. The majority of the small amount of imported product is produced in Canada. We estimate that over 90% of the materials we use to manufacture products in the U.S. are sourced domestically.


• ConocoPhillips (COP): I think a lot of uncertainty on the Border Adjustment Tax and its potential impact on how crude and other products move across the border, whether it’s south of Mexico or some of the crude that moves down from Canada into the U.S. I think there’s a little bit to be seen yet what that means. Does it get exempted or how are the details of that going to unfold?


• Chevron Corporation (CVX): President Trump has indicated that the border adjustment concept is complex, and I would agree with that. And so I think we need to take a close look at perhaps the consequences of that, both some that could be positive and the unintended consequences in terms of impact on consumers, exchange rates, and knock-on effects on the global economy. And I have no doubt that the administration will do a good job of doing that and will settle on the right kind of tax reform at the end of the day.


• Constellation Brands, Inc. (STZ): As you know, our imported Mexican brands can only be authentically produced in Mexico and sold in the U.S. In order to understand how different tax reform proposals could impact our business, we have modeled several different potential scenarios that include border adjustability, as well as some of the positive facets of a corporate tax reform plan based on what we know today... I’d also point out that the other benefits of tax reform that’s being suggested in the Better Way plan being put forth by the House, right, has very significant other benefits which will also offset any negative from border adjustability. So, I think it could be a net positive when all is said and done but it remains to be seen.


• United Parcel Service (UPS): When you get to the House blueprint, while we do appreciate the tax rate, we do share some concerns that many of our customers have about the potential impact of the border adjustment tax. And one of the first questions is we’re trying to find out just exactly how that’s going to work. And it’s a little bit early. We don’t have all the answers yet.

Deemed repatriation:

• Pfizer Inc. (PFE): In terms of the other part of your question about access to overseas cash, or easier access to overseas cash, clearly that would be beneficial. That would be favorable, all other things being equal. But in terms of does that make it easier to do deals? The answer is it depends. For example, what happens to the valuations of all the companies? If it’s easier to have access to overseas cash, does that drive valuations and prices up? So the compass has to continue to be shareholder value, return on capital, relative to our cost of capital. That’s what we’ve always done. That’s what we’ll continue to do. But at a macro level, all other things being equal, does easier access to our global cash help us, is it more favorable? The answer is yes. But there’s other factors that we’ll have to understand as we work our way through business development.


• Apple Inc. (AAPL): I am optimistic given what I’m hearing that there would likely be some sort of tax reform this year, and it does seem like there are people in both parties that would favor repatriation as a part of that. So I think that’s very good for the country and good for Apple. What we would do with it, let’s wait and see exactly what it is. But as I said before, we are always looking at acquisitions. We acquired 15 to 20 companies per year for the last four years. And we look for companies of all sizes, and there’s not a size that we would not do based on just the size of it. It’s more about the strategic value of it.


• PayPal Holdings Inc. (PYPL): If we’re allowed to repatriate funds from offshore in a more tax efficient manner, that might make a big difference in the way we think about capital allocation. And so we think that would be a big net positive. E. I. du Pont (DD): If we get the repatriation piece of that coming along with it, that would have very favorable impact... the biggest part of our cash on the balance sheet is outside of the U.S. and so that would have favorable impact on liberating additional dollars to be spent, whether it be on CapEx, M&A, or returning value to the shareholders through share buybacks or dividends.


• Halliburton Company (HAL): Of our $4 billion in cash, approximately half is offshore. We require about $1 billion to run the business. Given the strength of our cash position and the potential impact of U.S. tax reform, we’re actively evaluating our options and opportunities around uses of cash, which could include accelerating the maturity of debt, funding acquisitions and organic growth projects, or shareholder return opportunities.


• Honeywell International Inc. (HON): In the fourth quarter, we did about 2 million shares of buyback which is more than we normally would. And what I would say is that we’re going to continue on that approach. I mean, we do have a little bit of a restricter in terms of where our cash is located. You know that most of the cash is overseas, so we can’t just take $9 billion of our overseas cash and put it into buybacks, I mean, it’s not – just not practical.

* * *

II. REGULATION

Management teams are hopeful that widespread deregulation and improved regulatory clarity will stimulate economic growth. In an effort to simplify the regulatory environment and reduce its burden on US companies, President Trump signed an executive order mandating that two regulations be eliminated for every new regulation added. Topically, the President has committed to dismantle Dodd-Frank and to investigate pharmaceutical pricing methods.

General:

• AT&T Inc. (T): I had the opportunity to meet with what was then the President-elect a couple of weeks ago. And I got to tell you, I was impressed. I was meeting with a CEO. It was obvious. And the President had a very specific agenda in terms of what he thought was critical, and that was tax reform and regulatory reform. And we spoke at length about each of those. And I would tell you that the man, the President is focused on these. And so I left with a degree of optimism that this could actually be pulled off this year.


• Comcast Corporation (CMCSA): I think regulatory certainty for investors is the same as it is for management. It helps you have the confidence to make long-term plans. And the kind of discussion we’ve been having this morning, whether it’s fiber or other investments in in-home equipment, and what your business opportunities are, the more uncertainty, the less encouraging it is to want to invest. So we’re encouraged by the prospect of rules that we believe will encourage that investment, stimulate investment, whether that’s tax decreases or revisiting the authority of the government to go to places that they said they weren’t going to, but legally they could go to.


• Altria Group, Inc. (MO): Both at the FDA and for regulatory agencies, generally there appears to be a movement to try to lessen the regulatory burden on business. Our view that would be good. But those things take time to work their way through the agency. Take HHS for example. We don’t even have a cabinet appointee yet much less changes that would occur down the line.


• Chevron Corporation (CVX): In an overall sense, I’ve been very pleased with the agenda that the Trump administration has. We have seen an avalanche of regulation over the last decade, and putting a much more balanced cost/benefit framework in place to assess the value of those regulations, freeing up infrastructure pipelines, all of that is quite positive for our business, for the country, job creation, and a lot of things.


• ConocoPhillips (COP): Well I think it’s a little early to tell. We certainly hope the new administration, at least in terms of what they’ve talked about, is going to give us a little bit of regulatory relief, which is we think is good. There are some things that the last administration were proclamating that were a bit worrisome on sort of how it might slow the business down, both on the regulatory side and on the infrastructure side.


• Praxair, Inc. (PX): I don’t think less regulations is going to benefit us quite as much as it might our customers, for example, our energy customers who they would argue they’ve been saddled with some very difficult regulations over the year. So to the extent that that investment were to take off, we would certainly benefit from that.


• Boston Properties, Inc. (BXP): Now much has been speculated about a “Trump bump” to office markets in Washington, D.C. due to increased government activity, and New York City due to financial deregulation. While we see financial tenants more confident, as a result of the strong stock market in the fourth quarter, and legal and lobbying activity has increased in Washington, D.C., we believe it is too early to expect to experience broad positive leasing activity as a result of the speculated plans of the executive branch in Congress.

Dodd-Frank / financial regulation:

• JPMorgan Chase & Co (JPM): ...When you grow to add bankers or stuff, you know you have to do it through a cycle. I do think if there’s some regulatory relief, you will see banks be more aggressive and growing, opening branches in new cities, adding to loan portfolios, seeking out clients they don’t have. So I’m hoping that we’ll see a little bit of that too, but that will wait for a little regulatory relief.


• Bank of America Corporation (BAC): The optimism for positive change here at Bank of America and among our customers is palpable and has driven bank stock prices higher. We’ll have to see how these topics play out but that we are optimistic...


• U.S. Bancorp (USB): I understand, the administration that’s going to take office in the a few days, their number one issues are health care reform, taxes, and infrastructure. And somewhere in the top five might be financial services, but it’s not the top three. A lot of financial services issues, I think, will be dealt with in the early part of the year, but with some implications later.

Pharmaceutical pricing:

• Johnson & Johnson (JNJ): We have maintained a responsible approach to pharmaceutical pricing, generally limiting aggregate annual price increases to single-digit percentages below those of our competitive set. Furthermore, in our pharmaceutical business, we invest more in R&D than we do in sales and marketing. And cumulatively since 2010, we’ve invested more incremental dollars in R&D than we have realized from U.S. net price increases... I think it’s incumbent upon us as an industry to price responsibly. As you heard in the comments that I made earlier, we have attempted to do that. We believe that that has in fact been our practice.


• Amgen Inc. (AMGN): And now on the topic of drug pricing, the President was also clear, as he was throughout his campaign, about the need for us to find ways to bring down the cost of drugs for citizens in the US. We want and expect to work with the President and the administration to be part of the solution in that effort. In participation with the administration and Congress, we will seek to advance changes that enable more Americans to have affordable access to life saving and cost effective medicines.


• Pfizer Inc. (PFE): So I think complexity of drug prices involve all of the other comments [President Trump] made. And I think there are lots of ways, like changing regulations to allow value-based contracting between the industry and the health system, will also be very helpful. We have a regulation that was created for fee-for-service, and now we need regulations in a new world of value-based pricing. So I think there’s lots of ways we can work with the administration to ensure that patients have affordable drugs – or more affordable drugs in the United States.

* * *

III. Fiscal Spending

S&P 500 companies are optimistic about the prospect for increased government spending, particularly aerospace & defense and other industrial firms. A far cry from the $1 trillion infrastructure plan President Trump suggested during his campaign, our Washington, D.C. economist Alec Phillips expects only a modest spending package of $25 billion per year to be enacted as Congress focuses on other issues and is constrained by the size of the budget deficit.

Infrastructure:

• Praxair Inc. (PX): In terms of what might happen with infrastructure spending and things like that, nothing has really taken place yet. Some talk of energy investment, looks like that may happen, but again, nothing has happened yet... the U.S. is 40% of our sales. So anything positive that happens in the U.S. is going to benefit us and I would certainly hope that some of these things come to fruition. Again, I think infrastructure spending can be a big deal. It can certainly be a big deal to our customers and we would certainly benefit from that. But how much of that do you really think is going to be available? How much of that do you think is really shovel ready in 2017? So that kind of remains to be seen.


• Lockheed Martin Corporation (LMT): And I’m very encouraged that the dialogue has been around eliminating the defense sequester, just removing it altogether and there’s also a strong discussion around increasing defense spending, because we have, for the last few years, allowed our – with the budget caps et cetera, we have not been investing like we need to in recapitalization and in readiness and then a lot of things that you hear directly from our customers, our services telling Congress and telling the new administration that they need. So we’re very supportive of our defense customers and being a voice around that, because we do think it’s important to eliminate the sequester and the budget caps associated with it to allow them to do – to address the national security strategies and to provide the right capability for men and women in uniform.


• Caterpillar Inc. (CAT): For 2017, in reality, when we get towards the end of the year, what’s actually going to happen with dealer inventory will depend a lot on how dealers feel about 2018, I mean, you could paint a scenario with, again, tax reform and infrastructure spending and lesser regulation and more investment in energy. If all that happens, maybe dealers will be more bullish about 2018 and want to add inventory. So it’s a little bit hard at this juncture to get very definitive about that.


• Southwest Airlines Co. (LUV): There’s three themes that we’re very enthused about. You’ve got the tax reform, you mentioned the regulatory reform and then, thirdly, infrastructure investments which, I will admit, we’re a little bit wary of as to how that might either help or hurt us. But clearly, our primary objective is to modernize the air traffic control system, which falls into infrastructure and could have a huge benefit for aviation and for the traveling public.


• United Parcel Service (UPS): We believe the case for infrastructure development is clear. A world-class infrastructure is the backbone of a modern healthy U.S. economy, and it will certainly reduce costly delays for UPS.

Affordable Care Act (ACA):

• Aetna Inc. (AET): In spite of the best intentions of Washington and industry, the intended goals of the ACA have not been achieved. Millions of Americans remain uninsured and still lack access to affordable healthcare. Companies that have offered public exchange products, including Aetna and other for-profit and nonprofit companies, have collectively lost billions of dollars. These losses have forced most insurers to either scale back their participation or exit completely and in some cases even shut down, as is the case with the vast majority of the Co-Ops. The result is higher costs and more limited access for consumers... I think as we see the evolution on this next step of health reform, there is an opportunity for a retail market that is much more stable than the ACA has been as a way for us to grow... As the public exchanges enter their fourth year, it is clear that in the absence of a significant shift in regulatory policy, the risk pools for the ACA-compliant Individual Commercial products will continue to deteriorate.


• Quest Diagnostics International (DGX): As we’ve said in the past, we never realized the full benefit from ACA that we expected, so we wouldn’t expect any significant nearterm impact if it were to be repealed. We hope that any potential alternative appropriately recognizes the value of diagnostic information services in healthcare. Johnson & Johnson (JNJ): So we’ll have to see when new legislation is announced whether or not these fees and costs associated with the Affordable Care Act remain or if they’re altered in any way. But those have already been incorporated in our business. We’ve adjusted our cost structure accordingly and we have them fully baked into our 2017 guidance as continuing as they currently are.


• FedEx Corporation (FDX): So, we avoided hitting the Cadillac tax because of the steps that we took. Now, if ACA is not modified in that respect, given healthcare inflation, there’s a good chance we would hit the Cadillac tax in the out years, which would result in truly onerous taxes on the benefits above the Cadillac tax level of 40%. So, one of the most important things that we would like to see in the reform of the Affordable Care Act is to do away with the Cadillac tax limit, and that would give us the freedom to do some other things in our healthcare that we might not be able to do as long as we’re on that trajectory towards a 40% excise tax. It really penalizes excellent healthcare plans like we have, relative to other folks.

* * *

IV. Trade policy

Management sentiment on prospective changes to trade policy is mixed, with some in favor of the President’s intention to make American exports more competitive and others fearing that such policies will trigger a trade war. President Trump’s key issue is trade. Last week he tweeted on the topic: “Countries charge U.S. companies taxes or tariffs while the U.S. charges them nothing or little. We should charge them SAME as they charge us!” Hallmark promises of his campaign were the renegotiation of NAFTA, opposition to the Trans-Pacific Partnership, and the imposition of targeted tariffs on China and Mexico.

• Honeywell International Inc. (HON): Yeah, you have to be worried about a trade war. If it gets to that point, it’s not going to be bad just for trade but it’s going to be bad economically. It’s kind of tough to be in economic island now, especially if you’re the number-one economy in the world. So it depends on how all that gets handled. And yeah, of course, it’s a concern for us. On the Defense side, most of our stuff – you’ve heard me say this in the past, but Defense is more of a sales channel for us.


• Chubb Limited (CB): Broadly speaking, we are in a time of uncertainty, economically and geopolitically. On the one hand, the world is a tense place, marked by growing nationalism and populism that are feeding protectionist sentiment. This is a global phenomenon. I might add, while early days, I am concerned about our own country’s potential trade and security posture. On the other hand, in the U.S., the monetary and fiscal changes afoot around tax, regulation of business, infrastructure and higher interest rates, are a real positive for business, jobs and the economy, if implemented in a way that doesn’t exacerbate budget deficits.


• Pfizer Inc. (PFE): Stopping free riding is the way I’d put it. The economy’s free ride on innovation paid for by Americans, clearly it’s trade policy. It’s how we interact and how we do our trade policies and how we negotiate them, and I think the president has been clear that he thinks that they haven’t been negotiated hard enough. And as regards to free riding on American innovation of pharmaceuticals, I totally agree with him. And hopefully we will get something done on that. He certainly has declared his intentions to do so.


• PayPal Holdings Inc. (PYPL): There’s a lot of talk about protectionism, a large percentage of our cross-border trade happens outside the U.S. It’s not impacted by any of this at all. Our average selling price is $60. Think about that. Tariffs only apply to goods and services over $800. So most of this is not going to apply to what we do on a day in and day out basis.


• Morgan Stanley (MS): The bear case would be the retail investor doesn’t engage. There’s a geopolitical or political event which creates enough confusion in the minds of potential issuers that the underwriting calendar doesn’t come back. The M&A pipeline, for whatever reason, is crystallized given some of the changes on the political front including potential tax reform, et cetera, et cetera.

Source: GS

How We Got Here

Submitted by Eric Peters via EricPetersAutos.com,

America is in trouble because Americans got lazy. Not so much physically but morally. They began to care more about some passing thing than about the things that truly matter; the things that made America unlike other places.

Better than other places.

Things like principles; the plain meaning of words. The Fourth and Fifth Amendments, especially. Which were (past tense deliberate) laws written to articulate and protect principles that matter.

It gradually became more important to – as Thomas More’s character in the play, A Man For All Seasons put it – cut down all the “trees” (laws) that sheltered the individual for the sake of making things easier for the government.

For example, the Fourth Amendment’s prohibition of unreasonable searches – defined in sane terms and plain English as any non-specific search of people at random, who’ve not done anything to suggest they may have committed a crime. Fishing expeditions, in other words.

The idea was that the government should have to – in the first place – substantiate suspicion. It wasn’t enough for a cop to say – I don’t like your looks. He had to be able to articulate some definite thing (evidence) that gave him reason to believe you had committed or were about to commit a crime.

Today, cops stop people at random, without any specific cause at all. Without even having to say they don’t like their looks. It is enough that they are cops. And that you are not.

It was once the case that prior to a physical search of your property, it was legally necessary to obtain a search warrant – a piece of paper issued by a judge, who was supposed to issue the thing only if the investigator asking for it could present some definite thing (evidence) that supported his asserted suspicion of criminal activity. And the warrant had to be specific, stating clearly who was to be searched and what and where. This was to prevent something that used to be routine in the colonies under the British – the general writ, which empowered King George’s minions to search anyone, anywhere for anything.

Today’s redcoats wear blue (and lately, black). They search whomever, whatever, whenever.

We are even coerced into witnessing against ourselves via threats that failure to do will bring down separate charges and punishments.

Is this America?

I do not recognize it as such.

How did we get to this point?

The change occurred gradually but has become a juggernaut for the simple reason that precedent becomes routine. Once accepted, an affront is forgotten. It not only becomes accepted – it becomes acceptable to do it again. (Which, as an aside, is why this Obamacare business is so important. If it stands, if Trump does not repeal – not replace  – it, it is certain we will shortly be forced to also buy other forms of government-mandated insurance; for example gun insurance, if you want to own a gun.)

But when did it begin to become acceptable?

Probably when the Supreme Court gutted the Fourth and Fifth Amendments to placate “moms” who were “mad” about drunk driving. This was back in the ’80s, when it was still legally necessary for a cop to have specific probable cause – weaving across the double yellow, for instance – before he could turn on his lights and pull you over.

This of course made it inconvenient to arrest and cage people who may have had some drinks but were not “drunk.” Back then, you could drink and drive and – provided your driving gave no cause to suggest impairment – you were free to continue driving.

Apparently, competent driving aggravates people who are in fact much more opposed to drinking.

And so, checkpoints – dragnet style. At which every single driver would be (and is) forced to stop and – in blatant Fourth and Fifth Amendment rape – submit to a random (and thus, unreasonable) search and prove they are not drunk, according to an arbitrary standard (BAC level) without the cops having to even assert that their actual driving was somehow “impaired.”

It also became the legal obligation of the people forced to stop at these checkpoints to provide evidence to be used against themselves in a criminal prosecution. The court ruled that you must submit to various tests supposedly designed to establish drunkenness and that failure to provide evidence was (and is) a crime in itself. The burden of obtaining evidence was lifted off the shoulders of the accuser – who could now claim that failure to provide it amounted to proof of guilt.

Even if it is later determined – as a result of the various tests, which you may be forced to submit to (including forced blood draws) that you were not, in fact, “drunk” (and perhaps had not been drinking at all) you will still be prosecuted for your failure to assist in your own prosecution.

The court came up with a truly Orwellian concept they called implied consent – which is like sort-of rape.

You either consented – or you didn’t.

The courts saying you have given implied consent to be stopped and searched at random by dint of driving, or because you got a driver’s license (which you had to get) is an outrage upon words as much as it is upon rights. How is it any different than asserting a woman who has gone out on a date with a man has consented to have sex with him? If anything, it’s even more outrageous in the case of driving and implied consent, because in the case of the couple, they both agreed to the date part of the thing.

No court would enforce a contract upon you whose terms you had not freely consented to. A contract agreed to under duress – that is, under coercion – or which contains codicils you, the signer, are not made aware of prior to signing, is by definition not binding.

Except when the court decrees otherwise – because “moms” were “mad.” And also because it opened the door to more and worse, which I am certain was the true purpose. Have you been to an airport recently? I assume you know that literally every keystroke you make, every site you surf, every search, your emails and Skypes and phone calls and texts are all of them recorded, the “data” used to profile and keep track of quite literally everything you do, even though you’ve done nothing illegal to warrant it.

It had to begin somewhere.

Arguably, it began some thirty years ago, when it became ok to stop motorists at random in the name of apprehending drunk drivers. Henceforth, all drivers would be presumed drunk until they proved otherwise.

Is it really surprising that we are now also presumed to be terrorists until proved otherwise? At the airport, online.

Everywhere.

Voila, we find ourselves living in an authoritarian state in which making it easier for the government to arrest and successfully prosecute people for something, for anything is considered desirable. As opposed to the old American idea that people ought to be free to be left alone unless they have given damn good reason to suspect they’ve committed a crime of some kind. That the burden of proof ought to be on the government rather than proving one’s innocence the obligation of the citizenry.

But these are ideas that seems as quaint today as free association or using cash to pay for things and being allowed to actually own things without having to pay taxes in perpetuity to maintain the fiction that we own those things.

Maybe one day our children will recover the sense we appear to have lost.

"Fake News" Facebook Lands On List Of "America's Most Hated Companies"

Facebook just can"t seem to catch a break lately.  From questionable privacy policies and mass data collection of its users to its handling of the so-called "Fake News" epidemic (see "George Soros Is Funding Facebook"s "Third-Party Fact Checking" Organization Targeting "Fake News""), Mark Zuckerberg is pissing off a lot of people these days.  Unfortunately, when your entire business model is based on "friending" others, the alienation of various groups has caused enough people to "dislike" Facebook that the company has landed itself on 24/7 Wall Street"s list of "America"s Most Hated Companies."

Coming in at #6, Facebook narrowly beat out Spirit Airlines, which, for anyone who has been left stranded by Spirit in Chicago"s O"Hare Airport in the middle of winter, that speaks volumes. 

1. Comcast (NASDAQ: CMCSA)


2. Bank of America (NYSE: BAC)


3. Mylan (NASDAQ: MYL)


4. McDonald’s (NYSE: MCD)


5. Wells Fargo Bank (NYSE: WFC)


6. Facebook (NASDAQ: FB)


7. Spirit (NASDAQ: SAVE)


8. DISH Network (NASDAQ: DISH)


9. Sears (NASDAQ: SHLD)


10. Sprint (NYSE: S)


11. Wal-Mart (NYSE: WMT)


12. Charter Communications (NASDAQ: CHTR)

Meanwhile, the two largest cable providers in the country also made the
list which is astonishing given their impeccable reputation for such
helpful customer service and 100% internet reliability.  But, only about 40% of
the households in the U.S. rely on those two companies for service so
it"s probably not a big deal.

But, of the top 12, Facebook was the only Silicon Valley giant to make the list despite, as 24/7 Wall Street points out, being a "boon for shareholders since it"s IPO."

Facebook has been a boon for shareholders since its IPO.
The company’s stock is now trading over 200% higher than its 2012 Wall
Street debut. However, not everyone is pleased with the social media
platform. In recent years, the company has drawn significant
criticism over its privacy policies and the mass data collection of its
users.

Recently, the company faced
sharp criticism for not doing enough to curb the spread of fake news
leading up to the U.S. presidential election. Since then, in an
apparent attempt to mend public relations, the company announced a
series of new policies aimed at identifying and flagging fake news
stories on its site.

 Oh well, at least they beat Sears.