Article Reprint: 'A Pox On Both Your Houses'
Our good friend, Phil Orlando, CFA, Senior Vice President, Chief Equity Market Strategist, Head of Client Portfolio Management, Federated, published an article this week which we wanted to share….
‘A pox on both your houses’
The White House and Congress must come to terms on full immigration reform to avoid another shutdown.
Philip Orlando, CFA
Senior Vice President
Chief Equity Market Strategist
Head of Client Portfolio Management
Dear President Trump, House Speaker Pelosi and Senate Minority Leader Schumer,
I spent this past week in Canada, visiting with clients in Vancouver, Toronto and
Montreal. Their most-asked question was to describe exactly what’s going on with our
disgraceful government shutdown and the impact that it may have on the economy and
the financial markets.
Mr. President, while you enacted a temporary thaw in negotiations today, agreeing to
reopen the government for three weeks so employees can get paid after 35 days and
crucial services can be staffed, we know that the new talks easily could remain in
stalemate. As Kevin Hassett, chairman of your Council of Economic Advisors, has
estimated, the shutdown likely cost us about 0.1% of GDP growth per week to the $20
trillion economy. We at Federated have already factored in this shutdown in our
current 1.7% estimate for first-quarter GDP growth. But we believe the Blue Chip
consensus at 2.2% has not, suggesting a downward revision may be coming. The equity
markets, however, have largely ignored the shutdown, perhaps believing that it will be
short-lived and economically painless.
As you and your opposition in Congress sit down again, I would like to suggest a
framework for creating a longer-lasting solution to immigration policy.
We’re very concerned, of course, about the political intransigence and lack of good will
both sides are demonstrating on this issue, and it reflects our biggest worry since
Congress was split last November. Will there be serious negotiating and compromise
over the next two years to advance the American people’s work on critical issues such as
immigration, infrastructure, health care, trade and tax reform? Or have we set
ourselves up for two years of dysfunction and gridlock, in which literally nothing gets
done into the presidential election in 2020?
Rahm Emanuel, the current mayor of Chicago, was once famously quoted that we
should “never let a good crisis go to waste.” In the spirit of bipartisanship, then, how
might we navigate this embarrassing impasse to a successful conclusion? My strategy,
as I’ve discussed on CNBC, Bloomberg, Fox Business News and BNN Bloomberg
recently, involves broadening the impasse to craft comprehensive immigration reform
through old-fashioned political horse trading. This potentially solves a growing
dilemma we’ve been unable to successfully resolve for the past quarter century under
Presidents Clinton, Bush and Obama. So you collectively have an opportunity to do
something really good here. Seize the moment, do not let this chance pass.
The U.S. needs safe, legal immigration to offset the sharp decline in our organic fertility
rate over the past half century, as our rapidly-growing economy is now creating more
new jobs than we have unemployed people to fill them. These skilled and unskilled
foreign workers also would pay taxes into our rapidly depleting Social Security Trust
President Trump, you’ve asked for $5.7 billion for enhanced border security. As part of
that request, you plan to build a steel barrier along an estimated 234 miles of the 2,000
miles of our shared border with Mexico. As part of a comprehensive security solution,
you’re also envisioning the greater use of technology (such as drones and sensors), as
well as hiring more Border Patrol agents and immigration judges and lawyers. As a
model, we tried this approach in San Diego, successfully reducing illegal crossings by more than 90%. We also could create stronger economic incentives for individuals to
Speaker Pelosi and Senator Schumer, you were both on record and solidly in favor of
building this Mexican wall while Obama was in office, so what’s different today? We’d
really hate to think political gamesmanship had anything to do with your more recent
change of heart. We need you to be statesmen and negotiate reasonable immigration
requests of your own.
For example, you should demand an end to the shameful practice of family separations
at the border. Spoiler alert, both liberals and conservatives find this practice abhorrent,
and ripping immigrant families apart is not a successful negotiating tactic. Madame
Speaker, this is a practice that you can legitimately describe as “immoral.”
Next, feel free to demand citizenship for the “Dreamers.” Undocumented immigrants
brought along 800,000 of their children into the U.S. at a very young age, who were
protected from deportation under a renewable two-year program called the Deferred
Action for Childhood Arrivals (DACA) program, which Obama signed as an executive
order in 2012, but which Trump subsequently rescinded. As part of this comprehensive
immigration deal, Trump should sign the Development, Relief and Education for Alien
Minors (DREAM) Act, which was first proposed in 2001 and which would create legal
status and a path to citizenship for these young immigrants. Most of these protected
young immigrants are actively attending school or working, and the U.S. needs their
skills and workforce participation.
Their parents are 11 million undocumented foreign-born residents living in the U.S,
with most working and paying taxes. These immigrants are gainfully employed in very
difficult jobs that most Americans don’t want, such as agriculture, food-processing
plants, hospitality (restaurants and hotels), child- and elder-care, housekeeping,
landscaping and lawn maintenance, and construction. If these low-skilled jobs went
unfilled, it would harm U.S. economic growth, so we need to negotiate protections for
Finally, you should also insist upon an expansion of the H1B visa program. Because of a
skills mismatch for many native-born Americans, we need well-educated foreigners
with technical skills in science, engineering and information technology to fill our
many open, high-skilled positions. Three-quarters of the candidates for masters and
doctorates degrees in STEM (science, technology, engineering and math) majors at
U.S. universities are foreigners, with 46% of them from India and China. Instead of
deporting them after graduation, we should legally encourage them to stay, and
contribute to the economy.
President Trump, you should insist on your desired “merit-based” lottery to replace
the current “diversity” lottery system, which makes 50,000 visas available annually, to
diversify the immigration pool by selecting applicants from countries with low
numbers of immigrants. While diversity is important, your merit-based system rewards
hard workers with desirable skills to boost our economy, regardless of their country of
Given your concern about safety and security, Mr. President, you should also request a
reasonable cap on chain migration, the visa program through which immigrants already
living here can sponsor family members and bring them to the U.S. Many people have
taken advantage of the system and brought very distant—and sometimes undesirable—
In my view, this represents the framework of a successful bipartisan immigration
policy, which would also open the federal government and get everyone paid in full.
With any luck, Madame Speaker, you’ll be able to invite President Trump to deliver his
annual State of the Union speech in the House of Representatives next Tuesday
evening, as originally scheduled.
Good luck to us all, and may God bless the United States of America.
Philip J. Orlando, CFA
Views are as of the date above and are subject to change based on market conditions and other factors.
These views should not be construed as a recommendation for any specific security or sector.
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