by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
December 23, 2020
PRESIDENT TRUMP APPEARS WILLING TO BLOW UP the budget bill and covid relief, shocking this city — which seemingly was incapable of being shocked anymore by anything this president might do.
THIS COMES AS TRUMP LAUNCHES AN ALL-OUT WAR with traditional Republicans like Mitch McConnell, who have been rewarded for their four years of sycophancy with a furious assault from the president. He sees disloyalty everywhere and is vowing revenge.
TRUMP’S ATTEMPT TO HANG ON AS PRESIDENT is farcical, but the Covid bill is a big deal. As both houses agreed to the $900 billion compromise — assured by White House aides that Trump would sign the measure — it appeared that people would finally get some modest aid. A first quarter recession seemingly had been avoided. A government shut-down seemingly had been avoided as well.
THAT’S NOW IN DOUBT THIS MORNING as Trump labels the bill a “disgrace,” blindsiding all of his aides, including Treasury Secretary Steve Mnuchin. The financial markets may have to grapple with uncertainty over the Covid aid package for several more days. There are four scenarios:
1. This most likely scenario is that this is all a veto bluff, a chance for Trump to boast that he would make the checks more generous, while venting about provisions he doesn’t like in the massive budget bill (yes, there’s pork in it). Trump could be preparing his narrative for a 2024 run for president.
2. But there’s a scenario in which Trump is serious about his veto threat, and could hold out for $2,000 checks. It would add $370 billion to the bill’s price tag, but he doesn’t care about deficits, and the Democrats would happily delay passage of the package for such a huge upgrade in checks. “Let’s do it!” Nancy Pelosi proclaimed.
3. McConnell and the shell-shocked Republicans could dig in their heels, refusing to pass a package costing much more than $1 trillion. They could attempt to over-ride a Trump veto, but they’d need support from some Democrats.
4. Worst case scenario: A post-veto stalemate could drag this process into January, with Trump holding out for a bill more to his liking. This would not be a positive scenario for the markets, not to mention the millions of Americans who are barely hanging on until some aid arrives. Under this scenario, a recession would be back in the mix.
IT’S IMPOSSIBLE TO OVERSTATE the sense of confusion and anxiety in this city, as Trump begins his pardons of common criminals who were booted out of Congress (but supported him). He has spent most of this Christmas week plotting with unstable conspiracy theorists who have seduced Trump with plans to somehow keep him in office.
WE WOULD LIKE TO OFFER A FIRM PREDICTION on the fate of a shutdown, the budget and of course the pandemic aid, but it’s impossible to accurately forecast the next few days. Uncertainty will reign — and another veto fight, involving the defense spending bill, looms in the days after Christmas.
A FINAL THOUGHT: In this intensely political city, the next big story is the Georgia Senate runoffs on Jan. 5. Failure to pass a budget and virus aid would reflect poorly on Trump and the Republicans; it already was a factor in these two races. In the final analysis, the Georgia elections will prompt Trump to sign a bill. But exactly when he signs a bill — and what it looks like — isn’t clear this morning.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
©2020 AGF Management Limited. All rights reserved.
This post was first published at the AGF Perspectives Blog.
