• Bob Sellers

A New Reality

Updated: Mar 5, 2019

A seismic shift has occurred in Washington that was missed by the cable networks – even though ironically it occurred as they were showing the Michael Cohen testimony on Capitol Hill. For those of you who were working and couldn’t watch, here’s a recap. Michael Cohen to the committee: Donald Trump is a liar and a cheat. Committee Republicans to Michael Cohen: you’re a liar and a cheat. We don’t mean to be glib about the topic, because there are some details that may contribute to efforts to go after (or defend) Donald Trump legally and politically, and could last far beyond the Trump presidency. But it is unlikely that anything Cohen revealed is not already known fully by Robert Mueller and/or the Southern District of New York.

• So the biggest thing to come out of the Cohen testimony was that Democrats saw this public hearing as a win for them. Combine that with a Democratically controlled House where committee chairs can call virtually anybody to appear in front of them – and a national audience – and you have that seismic shift. The reality TV show president is now being challenged by a reality TV show Congress. Future witnesses will include Cohen himself (again this week), Trump family members, CFO Alan Weisellberg, and just about anyone who gets the attention of Democrats who can now provide counter-programming to Trump’s reality show directed from the Oval Office.

• Why it matters to Wall Street and Main Street: The dynamic of dueling reality TV shows is unlikely to contribute positively to any efforts to fix health care flaws, immigration policy, or to find ways to lower prescription drug costs. It’s not that Congress can’t chew gum and walk at the same time. It’s more that the relationship between the two parties will make it harder to work together to solve these – and other -- problems. And Nancy Pelosi has reportedly told more moderate Democrats to be careful about voting with the GOP, even on certain procedural motions. “This is not a day at the beach,” she said. “This is the Congress of the United States.” And with a reality TV show Congress, the partisanship on Capitol Hill may get even greater, just when that seemed impossible. The financial markets may be okay with all of this. But Main Street probably won’t like it. If Congress fails to deal with major issues, it’s another example of how Washington doesn’t work.

The 46 votes that will determine 2020

• Just four states – the presidential election in 2020 may come down to them. Wisconsin, Pennsylvania, Arizona and New Hampshire. Those 46 electoral votes may very likely determine the winner in 2020, according to the UVa Center for Politics. You can look at all the polls you want, and see that Donald Trump still has problems in the popular vote count, but as the nation was reminded, we don’t directly elect our presidents – we have electoral college delegates. What’s remarkable about Larry Sabato’s Crystal Ball analysis is that it shows both sides start out with more than 240 likely electoral votes – and we don’t even know who the Democratic candidate is yet, or whether Trump will survive all of his political and/or legal threats.

Changing how we elect a president

• Many Democrats feel that their biggest obstacle to taking back the White House is the electoral college. Putting aside Democratic candidates’ policy positions for a moment – which may alienate people on their own -- they’re not completely wrong. President Al Gore, I mean, President George W. Bush didn’t win the popular vote, and Donald Trump lost the popular vote by 2.8 million. The purist argument for electing a president directly is that all votes would count the same, regardless of who you were or where you lived. Right now, not all votes have the same value. There actually some smaller states where their votes count more. (If you live in a district with a population of 700,000, your vote would count more than if you lived in a district with a population of 750,000.)

Fact: In January, Representative Steve Cohen (D, TN) introduced a Constitutional amendment to eliminate the electoral college and directly elect the President and Vice-President of the United States.

Fact: A Constitutional amendment would require two-thirds approval in both houses of Congress, followed by approval in three fourths of the country’s state legislatures.

Opinion: This doesn’t have a snow ball’s chance in… uh, Florida, specifically Palm Beach County. (There is one observation of snow flurries, going back to 1977.)

• The last bipartisan effort to get rid of the electoral college was after the 1968 election, when George Wallace garnered enough votes to take five Southern states and 46 electoral votes. The fear was that two major parties might end up in a tie one day, sending the decision to Congress. A proposal for direct presidential elections passed the House, but was killed in committee in the Senate. The reason? Southern states didn’t want the states with the largest populations to dominate presidential elections. That is essentially the same argument against a direct popular election of a president even now.

Well, that didn’t go as planned

• While the early ending of the Trump-Kim summit gets played differently on the two political sides – on the left, Trump wasn’t prepared; on the right, this is a brilliant negotiating move -- there is something important that remains: the sanctions. And it strikes us that the sanctions will continue to be leverage on Lil’ Kim. They must be working because he obviously wants them removed. And they will create the incentive for North Korea to keep talking.

We also expect that this experience with North Korea will change most, if not all, attempts to set up summits worldwide. The President of the United States is supposed to fly in and be the hero. Reagan was a master at that – negotiations for the 1987 INF Treaty began in 1981, even though there were many hiccups along the way.

So maybe both sides are right. There do need to be many preparations before as summit where the head of state puts national credibility on the line. And not lifting the sanctions and walking away made it clear that North Korea must take verifiable steps. And they might want to add a slogan, something like “trust, but verify.” The story goes that at the 1987 treaty signing Gorbachev said, “You always say that.” And Reagan replied, “I like the sound of it.” The irony is that it’s an old Russian adage.

Why it matters to investors: North Korea is inherently untrustworthy, and nuclear weapons make Kim a threat to regional and worldwide stability. But Kim continues to refrain from testing missiles that might deliver nuclear weapons to American territory. That’s a good thing for South Korea’s and Japan’s security because American troops remain in place, and for the world economy, which is increasingly inter-connected. And while Kim claims that they are “denuclearizing,” we’re guessing that he will cheat where he can, so those claims need to be verified. But using the sanctions as leverage should keep him in check to some extent for the time being.

We won’t say we told you so.

• A month ago we pointed out a common headline in the media that said tax refunds were down 8.4% and it was essentially because of the Trump tax cut. We took issue with connecting the two. We said it was too early to draw such conclusions, and that changes in withholding tables and the partial government shutdown may be having an effect. Well now it appears that tax refunds are actually up. It’s still too early to determine what effect the Trump tax cut will have on final individual tax bills. And that’s the point. We’re not defending the tax cut itself. Arguments should continue over its fairness and whether we can afford it. But at least the journalists should do their jobs right. The headline connecting the lower tax refunds to the Trump tax plan were premature, and possibly, inaccurate. Let’s wait until we know more to draw a conclusion.

Cut the Budget by Cutting Discretionary Spending – But Here’s the Problem

• Every politician will say, “we need to curb our spending,” but 70% of the budget is already obligated. And unfortunately, discretionary spending is only going down – meaning fewer places to cut even as the national debt exceeds $22 trillion.

Looking for Lower Taxes?

• What do these states have in common? Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

No state income tax.

• What about these states? Alabama, Iowa, Louisiana, Missouri, Montana, and Oregon.

Federal taxes are deductible, at least to some extent.

• How about these states? Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania, and Utah.

A flat rate. Everybody pays the same income tax rate.

• Thinking about where to go where taxes are lower?Check out this list of states and their taxes.


• Millennials, your mom was right. She said to go to college – and you’re the best educated generation ever. And having a college education is the only way your earnings will go up. (Yes, yes, we know all about Steve Jobs and Bill Gates!)

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