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Morning Commentary

Harder to Ignore D.C.

By Charles Payne, CEO & Principal Analyst
5/17/2017 9:25 AM
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It was an interesting session on Tuesday that reacted more to non-economic news and scuttlebutt from Washington, D.C. than economic data, which continues to bolster my observation that the wheels of commerce are moving and building the kind of momentum that doesn’t expire overnight. 

The fact is that it took more than half a dozen years to grind down the innate instincts of growth and success of the American economy, which began to awaken in late summer 2016.

The reason why the economy began to turn is unclear other than there must have been a sense that the end of the Obama era would see a more business-friendly environment even if the Democrats won, but especially if the businessman Republican nominee was victorious.

This brings us to the revelation yesterday that wasn’t leaked by the New York Times, CNN, or Politico.  In an interview with Bloomberg News, Senate Majority Leader Mitch McConnell said efforts by the GOP on tax reform “will have to be revenue-neutral."  The Trump administration has worked hard to promote the idea of dynamically-scoring healthcare and tax bills, but they’re also saying these plans must “prime the pump.”

In other words, they ideally would not be revenue –neutral; instead, they should fire up the economy and get things flowing to prevent deficits and lower debt levels. No one will say if this is Keynesian, but there are enough members of the GOP that still hold tight to a conservative orthodoxy of lowering debt now rather than later.

In 2017 thus far, the market has been able to shut out noise from Washington, D.C., and even events such as the massive ransomware shakedown; the idea of a major legislation slipping into 2018 or maybe simply slipping is a reality few want to admit or embrace.

Layer on scandals (real and manufactured) means, even more, hurdles for the economic agenda; it would not only free the DNA for success, but it also would live up to its ultimate potential.

Momentum Building

The good news is the economic needle is moving; underscored yesterday, the Industrial Production and Capacity Utilization report beat Wall Street consensus.  I combed through the data last night, and two items leaped out. The capacity in iron & steel and oil & gas noticeably improved with areas of very high-paying jobs that require big capital investments to expand.

It should be noted these industries were in free fall as they headed into the November election.

There is no doubt that a part of the needle moving here is a direct and immediate reaction to lower regulations via executive orders and Trump administration actions. A lot more can be done to remove speed bumps and brick walls for these industries and others as investors and taxpayers wait for some kind of tax reform. 

Retail Tailspin

After the close, there were horrendous earnings reports and comp-store numbers from T.J. Maxx (TJX Companies) and Dick’s Sporting Goods (DKS).

As the death spiral for brick-and-mortar retailers (those particularly attached to malls) shifts to a negative velocity – a term many mathematicians say it’s impossible but I say it’s wholly appropriate – there is a notion it means consumers aren’t spending. Consumers are spending as the paradigm partially shifts, where more people live for the moment along with increasing wages. 

Last Friday, I pointed out the shift back to eating out versus buying groceries in the Retail Sales report; it is being corroborated by sharp moves in restaurant and bar stocks, including those that reported last night.

Mall traffic peaked in 2010 and declined by 50% through 2013, and has continued to decline since according to Cushman & Wakefield. At some point, there will be a play as new business models emerge from the ashes, but don’t confuse brick-and-mortar retailers as a proxy for the economy. 

Moreover, we are traveling, eating out, and spending millions on concerts and movie tickets. In fact, I paid a king’s ransom for two tickets to the Eagles, Fleetwood Mac, Steely Dan, Earth Wind & Fire, Journey and Doobie Brothers concert in July.

Today’s Session

All the chatter is about the latest bombshell in Washington, D.C.  that President Trump said he would “hope” former FBI director James Comey would let the Michael Flynn investigation go, according to a memo written by Comey.  Nobody has seen the memo, but several media outlets have confirmed its contents (and for my next trick).  So, the dark clouds over the timing of the agenda get darker.

Target (TGT) posted smaller losses than anticipated and its shares are popping this morning.  Other than that, the board market looking to open much lower.

I fail to understand the thinking about being revenue neutral. History has shown just the opposite. The republicans sat on that position for 8 years during the Eisenhower administration and they had the worst economy in history. Thirty percent of the time the US was recession, or about every other year. If our POTUS allows this to happen again, you will see the market take a big hit, let alone the economy and prosperity of millions of Americans.

Joseph Steiner on 5/17/2017 12:31:44 PM
I really am amazed that anyone can fail to understand the position that any legislative changes must be revenue neutral. That is a position which only says "Let's not make a very bad situation worse". One only needs to look at Greece, Spain, or Detroit to see what happens when an entity consistently spends more than it takes in. The USA is now in that situation. Trump inherited a disaster from the big 0 and he has a very difficult task in front of him to get the economy revved up to increase revenues without generating huge inflation. Inflation will get the government out of crisis, but do so at the cost of millions of seniors going under, which would destroy the economy. So the only way out of the mess Trump was handed is contained growth from tax cuts followed by real spending cuts that are not large enough to kill the growth. I would guess that it will take more than 2 decades of spending reductions to unwind the horrible damage done in the last 8 years. It would be a lot easier if people would realize just how much debt Obama has created for every child in this country, it is more than a decade of every penny they will earn.

Bob G on 5/18/2017 8:59:00 AM

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