Financial Review

Ever-Flowing Streams

….Mike Flynn pleads guilty, will roll over. Tax bill vote cometh right soon. Otherwise, a slow news day.

 

Financial Review by Sinclair Noe for 12-01-2017

DOW – .40 = 24,231
SPX – 5 = 2642
NAS – 26 = 6847
RUT – 7 = 1537
10 Y – .06 = 2.36
OIL + .90 = 58.30
GOLD + 5.00 = 1280.60

 

Markets started the session wobbling between positive and negative; waiting for word on tax legislation. Then a political bombshell dropped. The major averages hit their session lows on the report, with the Dow Jones industrial average briefly dropping 350 points.

 

Mike Flynn, former National Security Adviser pleaded guilty to one count of lying to the FBI about contacts with Russia’s ambassador. Prosecutors said he consulted with a senior official in Donald Trump’s presidential transition team before speaking to the envoy. Flynn became the first member of Trump’s administration to plead guilty to a crime uncovered by the special counsel investigation into Russia’s alleged attempts to influence the 2016 U.S. presidential election. The guilty plea is part of a plea deal. The White House said Flynn’s guilty plea on Friday implicated him alone. Ty Cobb, a White House attorney, said in a statement: “Nothing about the guilty plea or the charge implicates anyone other than Mr. Flynn.” If we parse that statement, it is at best, misleading. Flynn’s testimony will reach into the administration, we just don’t know exactly who will be crushed, and how severe the damage will be. Flynn’s plea agreement stipulates that he’ll cooperate with federal, state or even local investigators in any way Mueller’s office might need. We know that Flynn will testify against senior administration officials.

 

Speaking in court as part of his plea agreement, Flynn described a series of conversations with the Russian ambassador to the U.S., Sergey Kislyak, in late December as the Trump team prepared to enter the White House. The talks were instigated by a “very senior member” of the Trump transition team. Media reports say that based upon date and location and other factors, that “very senior member” is White House advisor and Trump son-in-law, Jared Kushner. Flynn said he then asked the ambassador to help delay or defeat a U.N. security council vote. Other senior officials who were involved in that vote include former advisor Steve Bannon, and former chief of staff Reince Preibus.

 

About a week later, Kislyak reached out to Flynn about sanctions that the Obama administration had just imposed on Russia. Flynn said he called a senior transition team official at Trump’s Mar-a-Lago resort for guidance, before asking Kislyak to moderate Russia’s response, which Russia ultimately did. Then, he told the court, he called transition team members to tell them what had transpired. Flynn now says he lied to the FBI in January about the conversations, but that he had fully informed the transition team of the talks. The fact that Flynn was operating on behalf of the incoming government represents the first concrete case of Trump’s presidential staff, rather than his campaign team, covering up contacts with Russia.

 

Flynn’s guilty plea is notable because the former national-security adviser, the closest adviser to the president on the most sensitive issues of defense and national safety, is pleading guilty to a felony committed while he served as national-security adviser. Also, the move puts Mueller’s investigation inside the White House. Before the Flynn charge, Mueller had charged two former campaign staffers with crimes committed outside of the campaign, and a low-level campaign staffer had pleaded guilty to lying to federal agents about his contacts with Russians during the campaign. Flynn was a top adviser to the president. Due to his unique ties to both the Trump campaign and the Trump White House, Flynn is particularly well-suited to answer the two central questions in the Mueller probe: Did the Trump campaign knowingly collude with Russia, and did Trump obstruct justice by trying to limit or derail the FBI’s investigation? And it’s possible that Flynn has even more Russia ties than is publicly known, since there’s already some reporting that suggests we don’t have the full story when it comes to Flynn and Russia.

 

Just to be clear – the Mueller investigation is working its way up the food chain. And Flynn is a pretty big fish. That means the next catch – the next indictment to come down will be even bigger. The very fact that Flynn was given a plea deal means that he has already provided valuable information to the special counsel’s investigation. ABC’s Brian Ross reported that Flynn is indeed prepared to testify against President Trump himself — and to say that Trump personally directed him to make contact with Russians. This doesn’t mean that Flynn has evidence of Russian collusion in the election, but it probably gets to obstruction of justice. If Trump had any knowledge of any kind of criminal liability that Flynn may have had — and he was trying to get Comey to drop the investigation — that essentially seals Mueller’s obstruction case. We still do not know that any laws were broken – innocent until proven otherwise – but we do know that Mueller has assembled a legal dream team, and if any laws were broken, they will uncover the violations.

 

If this was a normal day, the top story would be a vote on a massive piece of tax legislation. Senator Mitch McConnell, the majority leader, said “we have the votes” and the Senate will begin voting later today on tax legislation. The Joint Committee on Taxation, the independent tax scorekeeper, announced that even with projected economic growth, the Republican tax bill still would add more than $1 trillion to the deficit over 10 years, throwing a monkey wrench into the works. The committee reported that the tax would grow the economy by just 0.8 percent over 10 years, and still blow a hole in the budget. This is the first dynamic score of the tax bill, meaning it forecasts how the economy will react to the policy. Republicans are making the argument that huge corporate tax cuts will bring back jobs and investments and massively grow the economy — in other words, that tax cuts would pay for themselves. They have long called for this kind of scoring. But now, with an estimate much less optimistic than what they’ve been selling to their constituents, they’re ignoring the numbers and going with intuition. They have done no economic analysis to back their fantasy of magical growth in the economy. The committee report should have killed the bill.

 

What followed was arm twisting and a few heated arguments.  An effort by Senator Bob Corker of Tennessee to include future tax increases to offset the deficit impact of the bill appears to have been rejected by Senate leadership. Lawmakers are now considering reinstating a modified version of the alternative minimum tax on individuals and on corporations.

 

Arizona Sen. Jeff Flake, a key hold-out, announced just after noon that he would back the plan. Republicans can pass the legislation with 50 members and a tie-breaking vote from Vice President Mike Pence. This leaves Republican leaders a couple of undecideds — Republican Sens. Susan Collins of Maine (nope, she just flipped to a “yes” vote) and Bob Corker of Tennessee — assuming no further changes upset senators who are already backing the bill. And Arizona Senator John McCain, previously considered a yes vote, has now reportedly moved to undecided. The predicament leadership faces now is similar to the one they found themselves in on health care. If McConnell appeases Johnson and boosts the tax break for pass-throughs (which costs money), he could alienate Corker and Flake who have lobbied to make the tax bill less expensive. Although Flake looks like he worked a deal to vote yes in exchange for providing protections for DACA recipients.  If he appeases Collins, he could face problems with the Senate bill when it goes to conference with the House.

 

There was even some communication between the aisles, between Ron Wyden, the Oregon Democrat, and Mitch McConnell. Wyden wanted to know when he’ll see the bill. McConnell: There’ll be “plenty of time to read” it. That’s not exactly specific. But remember this still has to be reconciled.

 

The Institute for Supply Management said its manufacturing index slipped to a still-strong reading of 58.2% last month from October’s 58.7%.  The latest ISM reflects strong growth among U.S. manufacturers. Readings over 50% indicate more companies are expanding instead of shrinking. And readings near or above 60% are especially robust. Earlier today, the Census Bureau reported that overall construction spending increased in October. The Atlanta Fed GDPNow model for fourth-quarter GDP growth jumped after the ISM data on manufacturing. The estimate climbed to 3.5% from 2.7%.

 

In corporate news, shares of Mylan jumped 4.4 percent after a report that Amazon has held preliminary talks with generic drug makers about a potential entry into pharmaceuticals.

 

Ulta Beauty was among the worst-performing stocks in the S&P 500, falling 4.1 percent after the cosmetics retailer issued weaker-than-expected guidance for the current quarter.

 

In other headlines on yet another slow news day in DC: Trump plans to declare Jerusalem the capital of Israel during a speech next week. And Rex Tillerson calls reports that White House wants him to resign laughable.

 

Let justice roll down like waters and righteousness like an ever-flowing stream.

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