Remember last month when the Freedom Caucus shot down the number one legislative goal of the President and his super majority in Congress? Remember how the President then threatened the conservative coalition that they better not further muck up his legislative agenda, or there will be hell to pay in the 2018 mid-term elections?
While April got off to a fairly positive tone for the agenda, with golf outings, horse trading meetings between the Veep and the congressional holdouts with hope that both sides (within the same party) come together and finally agree on a plan to repeal and replace Obamacare. Again, that was then thwarted by a pesky two-week recess.
Now there seems to be little consensus on what to tackle first from a legislative standpoint as we get very near the symbolic 100-day mark for the new administration.
Why is this important? The fact of the matter is that there appears to be a civil war within the Republican party and within the White House itself. And it mostly centers on economic policy. Its been my view (and many others) that much of the market rally we’ve seen since the election was based on an assumption of a White House and its super majority in Congress having a laser-like focus on tax cuts and deregulation, and therefore boosting corporate earnings and economic growth. Recent delays to that agenda have suddenly started to look like about faces on nearly everything!
In the past week, we’ve seen a near tectonic shift for much of the President’s campaign platform. And quick shifts on what to do next. After the failed Trumpcare vote he said he’d move on to infrastructure and taxes but now that changed course again, with Trump saying health-care repeal must happen before a tax overhaul. China will not be labeled a currency manipulator, Fed Chair Yellen and low-interest rates are no longer “shameful”, The export-import bank is no longer an enemy of free enterprise… and forget about King Dollar.
And that’s not even to mention the shifts in foreign policy (which have huge economic implications). NATO is no longer obsolete, air strikes against a foreign sovereign are not interventionist or globalist, China is our friend and Russia is “incompetent”. I am probably missing a few, but I think we need to take stock of the shift we’ve seen in this White House. President Bannon, we hardly knew ya. Nice to meet you (((Jared and Gary))).
How will all of this play out with what’s on the agenda is anyone’s guess.
When congress resumes work on April 28th, the (100th day of Trump’s presidency) lawmakers in Washington have to agree on a proposal to keep the government funded for we face another shutdown.
And while we witness what may be the world’s fastest shift to the center on economic and foreign policy, the confusion on where we go next comes at a time when fear is beginning to seep back into financial markets; the 10 year treasury bond yield at its lowest level since mid-November, Gold at its highest levels since early November, and while the S&P 500 (SPX) is only down 2.5% from its all-time highs made in early March, the VIX is trading at the highest levels since the day after the election.
April may prove to be a defining month of the Trump regime, if a government shutdown is caused by his own party, it makes it all but certain that meaningful tax reform will not get done in 2017, that Trump’s close advisors will soon be Democrats like Gary Cohn and 2018 could be the sort of political mess we saw in 2016 as we barrel into the mid-term elections with multiple factions looking to undermine the President’s agenda. For those with a short memory, 2016 was a very volatile year for most risk assets, the SPX traded in a 25% range, crude was up 100% from its lows, that were 50% below its prior-year highs, the 10 year treasury yield was down 50% from its prior year highs, only to nearly double by year end, and the VIX has 5 vol spikes placing the index above 20:
