First Quarter Nearly Over, And One Issue Still Dominates All Others

by Greg Valliere, AGF Management Ltd.

WITH THE FIRST QUARTER NEARLY OVER, this is a good time to report on what we’re hearing on Capitol Hill, where the there’s a lingering bitterness over the deadly riot on Jan. 6.

THERE’S IN-FIGHTING OVER FILIBUSTER RULES, and what might land in the next massive spending package; there’s indecision about how aggressively to raise taxes. But the big issue, by far, is still Covid.

THERE’S A SENSE IN CONGRESS that Joe Biden has gotten off to a decent start (except for immigration). But there’s also a sense that compromise between the two parties is unlikely; we had thought that Biden and Senate Minority Leader Mitch McConnell would get along and agree on some legislation, but they’re becoming enemies.

A PARTISAN MOOD PREVAILS, with both parties already planning for the 2022 elections (the GOP has a decent chance of re-capturing the House). Thus the Democrats are in a hurry; they know there’s not much time to pass their agenda, and chances of killing or watering down filibuster rules are only fair at best.

MOST DEMODRATS WE TALK WITH think their only hope for major legislation will come later this year in a mammoth bill that will jam all sorts of issues — immigration, drug prices, infrastructure, tax hikes, etc. — into one massive package via the reconciliation process.

THIS PUTS HUGE PRESSURE ON BIDEN to negotiate. He has been a pleasant surprise, with a decent job approval rating and good scores on handling Covid-19. All other issues are secondary; Covid is what got Biden elected. With a third wave of the virus ripping through Europe, vaccinations are the dominant political issue in the world.

YET VIRTUALLY ALL WE HEARD LAST WEEK was about illegal immigration. Republicans have an issue; Donald Trump ripped into Biden on immigration yesterday. There’s a perception, fair or not, that Biden doesn’t have a plan.

BIDEN CAN BASK as Americans get their stimulus checks, and he has already cleared a low bar on the number of vaccinations that have been administered. We’re not out of the woods yet on the virus, with a thousand fatalities a day and Miami out of control — but shoppers are back, frequent fliers are back, and restaurants are back.

TOMORROW WE WILL ANALYZE a wide range of issues — defense spending, immigration, tax hikes, etc. — that Congress will confront now that the $1.9 trillion Covid bill has passed. The good news is clear: as spring begins, the economy is poised to surge, with more spending to come — from Washington and consumers.

The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

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This post was first published at the AGF Perspectives Blog.