HOUSE OVERSIGHT 014719 2. From a panel discussion last week: • Woo actually disagrees with some people's view that there is euphoria in the market. With real yields at -30bp, the fixed income market is pricing in pessimism on Trump (and as I've mentioned, our colleagues in fixed income/FX and their clients have been quite a bit more bearish than those in equities.) • Believes there is fear of stagflation in the market, while gold going through the roof on worries of inflation. • However, if the US$ strengthens by 25%, it will be deflationary. Dangerous for EM countries loaded in US$ debt, esp in the wake of boarder adjustment tax reform talk. • Tax reform is the only thing that matters. o US companies have $2-2.5trn of dormant cash sitting on their B/S outside of the US to avoid paying tax. o US is the only OECD country without a VAT tax. o What needs to happen is: implement a VAT tax that is border adjusted, and fix corporate tax rate. This will not only boost US economy, but will give a jolt to the world economy as well. o Positive that there is a solution, reform momentum on tax is strong regardless of political affiliation. There is a road out of the quagmire. o Question is: why when most other issues are getting leaked out of the White House, information on tax reform is not being leaked at all? Could it be a sign that the administration believes it is that important, and trying not to mess up on execution? [Or you could argue that there is nothing to leak at this point!] o On timing of tax reform: It is crucial we get a blue print of tax reform in the next 2-3 weeks [now 1-2 weeks], because Congress would like to raise debt ceiling while discussing tax reform before summer recess. o July 29th is start of summer recess, which means need to pass by May, requiring the bill proposal to be ready by March. Therefore, in the next few weeks, we need to see progress for an August deadline. o On personal income tax, Trump and Obama are actually on