HOW DOES THE END OF THE FILIBUSTER AND 2014 OPEC ACTION RELATE?
By: Kent Engelke | Capitol Securities
Will history regard Senator Reid’s 2013 ending of the Senate filibuster and the 2014 OPEC decision to flood the world with oil as two of the worst political calculations in recent history? Both have the potential to have an infinite number of unintended consequences as the intermediate future did not materialize as expected.
Commenting about the former, in 2013, the Democratic Party was convinced that it would maintain control of the Senate, win the White House in 2016 and perhaps regain control of the House. Senate Majority Leader Reid pushed through a procedural change that had previously prevented a simple majority ruling for many Presidential appointees. Under the newly passed regulation, only 51 votes were required for approval versus the historical 60.
It appears the Trump Administration will utilize this procedural change to confirm his cabinet appointees and perhaps the nomination to the Supreme Court, the proverbial nuclear option.
For the record, I am in favor of returning the filibuster.
How will the electorate view Democratic insistence of delaying Trump’s picks, a delay which at this juncture is viewed as symptomatic of everything that is wrong in Washington? Will this view change and Trump next be viewed as a proverbial bully by obtaining Senate approval by a change in the approval process that was instigated by the former majority?
As noted yesterday, Trump is a nationalist populist who ardently believes the people, not the government, make better decisions for the country. The majority of the electorate shares this view given the dominance of the Republican party in most levels of government, in some regards the greatest dominance in history.
And then there is OPEC. According to industry reports, there is 88% compliance with the production cuts. Many thought the inverse would occur. Moreover, Saudi Arabia and other cartel and non-cartel members have stated they would reduce production even more if conditions warranted.
I will argue OPEC et.al. does not have any choice other than to reduce production given the lack of infrastructure spending and large demands for monies to fund their entitlement programs. Many OPEC members require oil over $90 barrel to fund their needs.
The above has large implications for the markets. The proverbial animal spirits have been released believing Trump can reduce the power of today’s Administrative State. This releasing of spirits is a major reason for the recent market advance.
Regarding OPEC, will oil double again, the result of stronger demand and lower production as was the case in 1999? As noted many times, the similarities to that era and to today are uncanny. How will such events affect inflationary expectations?
Speaking of which, the Fed ended its two day meeting. As expected, there was no change in monetary policy, but acknowledged rising confidence among consumer and businesses following Trump’s victory.
The Committee reiterated their expectations for moderate economic growth, “some further strengthening” in the labor market and a return to 2% inflation. Policy makers gave little direction on when it might next raise borrowing costs, as officials grapple with the uncertainty created by the new administration. However there was little to alter the prevailing wisdom that there will be at least three increases in 2017.
Markets were relatively unchanged following the Fed’s announcement, thus suggesting it was essentially a non-event.
Last night the foreign markets were mixed. London was up 0.62%, Paris up 0.22% and Frankfurt unchanged. China was closed for a holiday, Japan down 1.22% and Hang Sang down 0.57%.
The Dow should open nominally lower on economic and political concerns. The 10-year is unchanged at 2.47%.