The State of the Union Address: Although presidents have provided annual addresses to Congress since President Washington delivered his in 1790 and President Wilson helped it become routine practice after 1913, Trump’s first State of the Union Address was certainly one that will stand-out in the history books. During his speech, he covered tax cuts, immigration, energy, health care, bipartisanship, and infrastructure. Instead of our usual headline and takeaway format, we will simply breakdown and dissect the aforementioned key points Trump made in his speech.
Tax Cuts: “And just as I promised the American people from this podium 11 months ago, we enacted the biggest tax cuts and reforms in American history. Our massive tax cuts provide tremendous relief for the middle class and small businesses.” The vast majority of this is purely hyperbole; they were not the biggest tax points and reforms in American history by any means. However, given that this was the one policy of his campaign platform that he was able to follow through upon in those 11 months and given that the cuts could potentially help Americans, we’ll give him a mulligan and look beyond the fact that President Regan’s 1981 Tax Cut was 2.89% of GDP while Trump’s is 0.9% of GDP.
Immigration: “The third pillar ends the visa lottery -- a program that randomly hands out green cards without any regard for skill, merit, or the safety of our people. It is time to begin moving towards a merit-based immigration system -- one that admits people who are skilled, who want to work, who will contribute to our society, and who will love and respect our country.” The current visa program is not as random and nowhere near as reckless as it is being portrayed. In fact, the current system that issues roughly 185 different types of visas already addresses skill, merit, and safety when vetting individuals for nonimmigrant visas (associated with temporary visits regarding business, tourism, academics, and family matters) and for immigrant visas (associated with permanent residency in the country). Each of these different types of visas already involve a multi-step process to check backgrounds and mitigate against potential threats, however, no system is ever entirely fool or threat proof. All-in-all, can the current process for issuing visas be improved? Yes, absolutely. Is it currently as much of a random free for all? No, but fear is a powerful motivator.
Energy: “We have ended the war on American Energy -- and we have ended the war on clean coal. We are now an exporter of energy to the world.” This too is false - there is no war against the American energy industry. Over the past few decades, the country has significantly increased oil production and has made dramatic advances in hydraulic fracturing (aka “fracking”). Furthermore, and since 2015, the United States has been sourcing more energy domestically than it has been importing. Also, “clean” coal does not exist. When coal is burned using any available method, the byproducts are sulfur dioxide, nitrogen oxide, carbon dioxide, and other various hazardous gases. There is nothing clean about burning coal.
Health Care: “We repealed the core of disastrous Obamacare -- the individual mandate is now gone.” Out of everything, this was one of the least misleading statements in the whole address. It is true that Congress has repealed the individual mandate within Obamacare that requires Americans to either carry insurance or face penalties. The untrue part is that it has already been eliminated – the repeal of the individual mandate does not take effect until 2019.
Bipartisanship: “In the aftermath of that terrible shooting, we came together, not as Republicans or Democrats, but as representatives of the people. But it is not enough to come together only in times of tragedy. Tonight, I call upon all of us to set aside our differences, to seek out common ground, and to summon the unity we need to deliver for the people we were elected to serve.” This is exactly the type of language and mentality that we want to see from our officials in Washington, but it takes both sides to actually make an effort that goes beyond exchanging hopeful platitudes. Moreover, it also requires each side to avoid feverishly berating the other on social media in the days leading up to and after expressing such a sentiment. While these calls for bipartisanship sound great and sell well to the general public, the administration is grasping for straws here given the fact that the language emanating from the White House has generally been combative. It’s purely hypocritical, and did not add legitimate value to the President’s speech.
Infrastructure: “Tonight, I am calling on the Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment we need. Every Federal dollar should be leveraged by partnering with State and local governments and, where appropriate, tapping into private sector investment -- to permanently fix the infrastructure deficit.” Setting aside the rhetoric from the bulk of the President’s address, this excerpt is worth careful consideration and debate since it directly covers real policy concerns. The vast majority of Congress and the general public would most likely agree that America’s infrastructure needs attention. Furthermore, the key elements that Congress will have to hash-out in the coming months is how to finance this overhaul and where the spending will be allocated throughout the nation. But that’s the point – we have something here to debate. This commentary from the President gives Congress objectives and direction to focus on. The State of the Union is his chance to speak directly to Congress on a national stage and call for action on specific issues. We would have preferred to see more of this rather than political grandstanding.
FBI Deputy Director Andrew McCabe Steps Down: In the wake Director Comey’s firing on May 9th of 2017, Andrew McCabe briefly served as the acting director of the FBI until Christopher Wray was officially appointed as director of the bureau later in August. Following Wray’s appointment, McCabe reassumed his role as Deputy Director of the FBI until his resignation on January 29th of this year. Throughout his tenure, however, McCabe increasingly became the target of a number of tweets from Trump due to Hillary Clinton’s support of Jill McCabe’s (Andrew McCabe’s wife) campaign for State Senate in Virginia. Where the animosity between McCabe and Trump deepens even further is when Trump reportedly called McCabe after firing Director Comey in order to enquire about the now Ex-Director Comey flying back to Washington on a government funded plane. The catch here is that during this call, Trump allegedly suggested that McCabe ask his wife how it feels to be a loser – referring to her unsuccessful State Senate campaign. Better yet, it was also reported by The Washington Post that Trump had even questioned McCabe in May of 2017 about who he had supported in the presidential election.
Our Takeaways: None of this is necessary. If a President has any concerns about a potential conflict of interest or biased action from the FBI Director (or the Deputy FBI Director), then the President can confer with White House counsel and officials from the Department of Justice to investigate the given matter. Airing out dirty laundry via social media for shear spectacle is not only in poor taste, but also yields nothing fruitful to alleviate the cause of concern. If anything, such action only tarnishes the reputation of an investigative agency that has faithfully and honorably protected this country for over a century. McCabe’s departure, while unfortunate and needless, was just a minor issue in the broader happenings around Washington’s investigative agencies as of late. More specifically, the Russia Investigation is still casting a strong shadow over the Trump administration and we have yet to see the President interviewed by Special Counsel Robert Mueller. All-in-all, the President’s behavior is not doing himself any favors and the hostility has only worsened over the past year since his inauguration and as the various investigations have progressed. We expect similar departures as McCabe’s to occur going forward while more drama on the Hill unfolds.
Amazon, Berkshire Hathaway, and JP Morgan Chase on Health Care: On January 30th, Berkshire Hathaway’s Warren Buffett, Amazon’s Jeff Bezos, and JP Morgan Chase’s Jamie Dimon announced that their firms will be working together to create a new company focused on providing high-quality, low-cost health care for their U.S. employees. In a joint news release, the team stated, “The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent health care at a reasonable cost.” Moreover, this new company will be “free from profit-making incentives and constraints.” With this initiative in the works, Dimon stated, “The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families, and potentially, all Americans.
Our Takeaways: We’re no stranger to ambitious goals and daunting challenges, but correcting and streamlining the complex intricacies of the health care system is going to be entertaining to watch. Between the three firms, this power team employs nearly a million individuals across dozens of countries around the globe – so the impact of their efforts, if successful, could even have far reaching effects outside of the United States. Diving deeper, Bezos touched on what is likely to be the key motivation behind this project when he said, “Hard as it might be, reducing health care's burden on the economy while improving outcomes for employees and their families would be worth the effort." Even though this endeavor is supposed to be free from profit-making incentives and constraints, we can certainly say that it isn’t fee from cost-saving incentives and constraints. In other words, these three industry titans are looking to hit two birds with one stone by creating a new health care system that greatly improves business productivity through the fostering of a healthier, happier workforce. By reducing cases of illness, injury, depression, and disengagement (some of the leading causes for absenteeism and low productivity) this team can take steps that indirectly improve their bottom line while also directly improving the quality of life for their employees. Given how recent this announcement is and the lack of further details on the subject at the moment, we will have to follow up on this concept in future letters later this year.
Bitcoin Follow Up: At the beginning of the year, bitcoin was trading at approximately $13,400 per coin, down from its all-time high of about $19,300 in mid-December. By the end of January, the price per bitcoin had fallen to under $10,200.
Our Takeaways: As stated in several of our previous investor letters, this is why we have refrained from participating in the crypto-craze. Over the past year, the value of bitcoin, ethereum, and other cryptocurrencies have rapidly surged to extreme highs and have led many to compare these digital currencies to Tulip Mania – the speculative bubble in tulip bulb prices that occurred during the Dutch Golden Age. With this rapid rise in popularity and value, a bitcoin correction was bound to occur. Furthermore, additional skepticism hasn’t aided the situation with various CEOs, economists, and politicians around the world questioning the feasibility and legality of cryptocurrencies. While many countries have either responded positively or neutrally to the rise of cryptocurrencies, many governments are considering steps to ban them altogether or regulate them in some fashion. Some countries in which cryptocurrencies are under high scrutiny or have been banned include: India, Russia, China, Ecuador, Bolivia, and Iceland. Over-all, we plan to simply observe from the sidelines how this latest craze plays- out, and see whether cryptocurrencies will survive past these initial stress-tests. Regardless, we are far from participating in any related exchanges, but wanted to address this again since we have received enquiries about this subject on several occasions over the past few months.