Drop the BAT and Run
The “big six” tax reform working group announced Thursday that Ryan and Brady have officially given up the “border adjustment tax” idea, as we predicted they would have to. USD has made a round-trip from its May 2016 bottom when Trump clinched the nomination, having appreciated because of false fears of the BAT, and is now in equilibrium. Dropping the BAT eliminates a protectionist threat, and removes a major bone of contention in tax policy, which clears the path for tax cuts in Congress this year. This would be an upside surprise for markets. Despite seeming chaos in Washington, US stocks are on track for a 2017 total return of 20.9%, and risk premia are lower. Technically, a correction is overdue. But risk-tolerant markets can handle the chaos of the Trump infamy ecosystem. It is informationally efficient to reveal distasteful processes that were there all along, but concealed.