Getting the Big Ideas Right | September 23, 2020

To honor the life of Justice Ruth Bader Ginsburg, my wife and I lowered the flag at our family cottage in northern Michigan to half-staff at sunset on Saturday night. Ginsburg’s intellect and kind-hearted devotion to equality and freedom redefined jurisprudence in the American legal system.

Ginsburg was 5’1” but she was a towering figure in the history of the United States. She became a symbol for strength and moral purpose for generations of Americans and advocates around the world. She gave history a nudge. We are better because of her.

Within moments of the news that Justice Ginsburg had passed, Senate Majority Leader indicated that he intended for the Senate to convene a vote on a new Supreme Court Justice in short order. Critics have cited the “Biden Rule” which Senator Biden invoked in 1992 in defining floor remarks for the process of modern Senate practice.  USA Today lists these five individuals as being top contenders for a Republican led process. Axios prepared a larger candidate list of possible considerations. On Sunday, the President stated that he would be nominating a woman to fill the court vacancy in the coming days.

On Monday, Hotel Business published its exclusive story breaking the news that Virtua Partners and its affiliate Hotel Equities have officially acquired a 36-hotel portfolio from The Witness Group, a hotel operator and developer based in the Midwest. The portfolio of top-tier hotel brand names expands Virtua’s reach into the Midwest marking a significant deal for the firm. Hotel Equities will work closely with The Witness Group to oversee the transition of management and enhancement of operational procedures. To learn more read the full press release here.

*See end of newsletter for important disclosure

The Paycheck Protection Plan (PPP) expired at the end of August. One week later, 881,000 Americans filed for unemployment. The following week another  860,000 American filed for unemployment, making the overall figure 29.7 million Americans claiming unemployment benefits. A group of bipartisan lawmakers put forward a September 15 plan to restart negotiations, which includes $240 billion for a 2nd round of PPP funding.

The federal government’s fiscal year expires October 1, 2020.  The House of Representatives has scheduled a legislative calendar through October 2, 2020.  The Senate has scheduled a legislative calendar through October 9, 2020. The Highway Trust Fund expires on September 30, 2020. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin both report they expect the government to be funded through the middle of December in a Continuing Resolution (CR). The short-term extension may receive a vote as early as this week.

Give our latest in-depth hospitality industry review a read here. Key metrics like short-term bookings and web traffic volume are showing significant signs of life as travels gain more confidence. Beach destinations continue to see the bulk of travel interest. On the capital markets side, we continue to watch CRE loan performance and delinquency rates. A breakdown of high-level loan metrics is provided in the update.

U.S. House Ways and Means Committee Ranking Member Kevin Brady is expected to introduce legislation which will implement President Donald Trump’s executive order to institute employee Social Security payroll tax deferral. Current law states that the payroll tax holiday shall be put into effect from September 1, 2020 through December 31, 2020 for employees with wages less than $4,000 for a biweekly pay period and/or employees with a salary less than $104,000 per year.  Market commentary can be found here and here.

The Treasury and the IRS have finalized a July 28 decision in the Federal Register effective September 14:  Here, please find the final and proposed regulations on the matter of net business interest expense limitation under Section 163(j).

Former Vice President Joe Biden introduced a fact sheet on his proposed tax changes. Here is some additional analysis on how these changes would impact the oil and gas sector. Biden has also produced a fact sheet of benefits for onshoring jobs.

On Friday, the Federal Reserve unveiled new guidance to streamline the Main Street Lending program.  Here are the Fed’s FAQs for taxed and tax-exempt entities.

Federal Reserve Board Vice Chair Richard Clarida outlined the Fed’s changes to the monetary policymaking process in a prepared speech followed by question-and-answer with the Peterson Institute in Washington this month. The Federal Reserve has undergone a year-long public review of its monetary policy, including livestreaming events with all twelve reserve regional banks, public research conferences, and an expanded briefing schedule. The Fed statements consistently cite unemployment as a key driver for policy offsets to the federal interest rate alongside inflationary expectations.

The Tax Foundation has compiled a state-by-state report of how each state’s tax revenue has tracked thus far in 2020, as compared to 2019. On average, overall tax receipts are down 5.5% with a 10.1% year-over-year drop in individual income receipts and 17.5% corporate tax decline. These figures demonstrate “a loss of far lower magnitude than many initially feared,” concluded the report.

As part of their policymaking process, the Federal Reserve has published a report on the Well-Being of U.S. Households. “In July, 77% of adults said they were doing at least okay financially, up from 72% in early April, and 75% in October 2019.” Asked if households “would be able to pay an unexpected $400 emergency expense entirely by using cash, savings, or a credit card paid off at the next statement,” the data showed an increase in economic health from last year, with 70% now as compared with 63% last October. 14% of respondents reported losing their job—of those 30% had returned to their previous job and 10% said they had found new work.

Barbara Tuchman can help us set the stage of the next step of U.S. China economic integration. She once said that when Air Force One in 1972 landed and President Nixon walked off the tarmac, it had the force of 1 million troops landing in China.  Fast-forward to January of 2020: China’s Vice Premier Liu He signed a trade deal with President Donald Trump in a ceremony in the in the East Room at the White House. As part of its agreement, China pledged to open capital markets to U.S. investment firms. This past week, several leading American investment groups report they have struck big deals in China, including: BlackRock, Citigroup, Vanguard, and JP Morgan Chase.

The Peterson Institute zooms out to the big picture with an understanding of how the new U.S. trade agreement with China is tracking. In addition to the January 15 phase-one agreement, the United States has announced new export restrictions on China high-technology commodities. This summer, the United States ended key parts of its special status relationship with Hong Kong.

The United States and India are expected to announce the structures of a formal trade agreement in the near term. Here is a look at our current and historical trade relationship. India has asserted more of a dominant power role in weapons testing and trade norms in alignment with the United States.

FedEx founder and CEO Fred Smith joined a group of distinguished public thinkers for a conversation in Washington about the 2030 global economy. The conversation put it bluntly asking: “Are our rules helping us or hurting us?” America is the “preeminent but not the predominant” global trading power. The conversation urged American policymakers to adapt to the reality that the same rules that applied to American leadership in the post-World War II world may not be the right tools for the greatest challenges of the modern world: China’s state-directed mercantilism has efficiencies and norms that do not conform with market-driven economies. In a digital workforce with artificial intelligence (AI) as a driver of new wealth and economic expansion, the report stated that policymakers should: (1) Improve the competitive knowledge, skills, and training of America’s workforce; (2) Remove barriers to innovation; (3) Modernize and improve the international trading system. Smith and other leaders commissioned the following study on the trends that will drive $15.7 trillion in new wealth that is expected to be created in the digital and AI economy by 2030.

This past week, in an effort to apply pressure on American efforts to restrict China’s telecom operations on global networks, China launched its own initiative to govern digital markets as a next phase of the Belt Road Initiative in cyberspace. In early summer, Great Britain ramped up efforts to form a 10-nation alliance of free market powers to cut reliance on China’s state-owned enterprises. The FBI has warned that China’s raid on American intellectual property represents one of the greatest transfers of wealth in the history of the world. As of Sunday night, a federal judge has blocked the American government’s efforts to ban China telecom products in the United States.

On the global stage, the World Trade Organization is undergoing a review of whether to impose first-time customs duties on electronic transmissions that can include software, emails, text messages, digital music, movies, videogames, and other digital content. On August 31, 2020 the Director General of the World Trade Organization announced he is stepping down with the following list of candidates to replace him and take-on the next-round of global trading policies.  The United States is currently investigating policy developments in Austria, Brazil, the Czech Republic, the EU, India, Indonesia, Italy, Spain, Turkey, and Great Britain on efforts to impose digital service taxes.

Tesla continues to expand its investment in battery technology as the U.S. automaker plans for what Musk calls “battery day,” the day in which market disruption will see a revolution in battery capability. Musk will be meeting with his shareholders on Tuesday this week.

Microsoft has warned its users of cyberattacks targeting disinformation and coercion in advance of the November elections to more than 200 civic groups. This statement follows an intelligence assessment by the Director of National Intelligence in an August 7 warning about Chinese, Russian, and Iranian efforts to disrupt public trust and engage “covert influence” in civic institutions. For a report on how authoritarian regimes conduct espionage and interference in democracies, the German Marshall Fund issued a comprehensive report on the methods used. The Department of Homeland Security is ordering all federal agencies to review and report cybersecurity vulnerabilities.

Public pollster Frank Luntz presented two side-by-side facts this weekend: The Center for Disease Control reported that in 2019-2020, the flu vaccine was only 45% effective; whereas leading research on containing the spread of infectious diseases at the University of California Davis Health reported that simply wearing a mask reduces the risk of infection to the wearer by about 65%. The underlying data concludes that surface contact is significantly less of-concern for risk of infection than it was at the outbreak of the Coronavirus, whereas respiratory contact is the primary driver of infection.

Last summer I read American Serengeti, by Dan Flores. The book is a fascinating and moving account of the American prairie from the perspective of what an aerial view would have looked like in 1800. It is well worth a read for any enthusiast of western lands. In his conclusion, Flores references the work of the American Prairie Reserve to build the largest private national park in the world, coordinating the purchase of $1 billion in private lands in the American great plains to restore habitat and create a place for public visitors to enjoy. After my wife takes her bar exam October 5-6 our plan is to get outdoors and enjoy the fall and coming of winter. Here is are interactive maps of America’s National Parks and State Parks. The Farmer’s Almanac has a date-ranged-map for peak foliage near you!

Oliver Schwab is executive vice president of government affairs at Virtua Partners. Oliver supports and provides strategic guidance to the Virtua team, investors and owners with an active voice, shaping and understanding government policy.

In additional to Oliver’s work with Virtua, he leads a family office that he co-founded. Oliver is also trustee and treasurer of a private foundation. He served as a chief of staff in the United States Congress from 2011-2018. Oliver has experience as a principal in tax, trade, financial services and national security policy. He continues to support public diplomacy as a national security scholar.

Oliver is a visiting lecturer at the European Business School in Germany and the University of Warsaw in Poland. He is also a graduate student in strategic studies at the United States Naval War College, China scholar at the Center for Strategic and International Studies, and has been a fellow at the Woodrow Wilson Center for International Scholars and the Council on Foreign Relations. Oliver focuses his research on the relationship between policy, strategy and decision making. He and his wife Ana are the incoming cabinet co-chairs at the Thomas Jefferson Foundation.

*The article from Hotel Business incorrectly states that Virtua Partners has invested $500MM in Hotel Equities. Virtua Partners intends to invest up to $500MM in Hotel Equities over time on opportunities like the recent transaction with the Witness Group.

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