Uncertainty Will Reign This Fall

by Greg Valliere, AGF Management Ltd.

A CHAOTIC FALL is shaping up in Washington, with the outlook for massive new spending and taxes now in doubt — and a nasty debt ceiling fight threatening to annoy financial markets by next month.

COMPOUNDING THIS UNCERTAINTY is the Delta variant, which chilled the unemployment data last Friday and may persist after 80,000-plus people jammed into football stadiums around the country this past weekend. With fatalities running at over 1,000 per day, the virus may dissuade people from returning to work just as unemployment benefits end.


1. Federal Reserve tapering of asset purchases still seems likely to begin by year-end, but last Friday’s disappointing jobs data will delay the timetable a bit. Dovish Chairman Jerome Powell, still the favorite to win another term, will make it clear that a rate hike is a year away — or longer.

2. The fate of massive infrastructure bills is cloudy as key Democrats in both houses balk at the price tag. The $1 trillion bill for highways, bridges, water, etc. will not be fully paid for. And the $3.5 trillion social spending package is clearly not credibly paid for, so Democrats are looking at Plan B — even more new taxes.

Bloomberg and others reported this weekend that Democrats are seeking a wide range of controversial taxes that would be a nightmare for the financial services industry — a tax on stock buybacks, curbs on executive compensation, a dramatic hike in Biden’s capital gains tax, plus a potential carbon tax.

No word yet from moderate Democratic Sen. Joe Manchin on this trial balloon, but we’d guess he would be opposed, along with Sen. Kyrsten Sinema. If tax hikes are pared back, the second infrastructure bill would be in trouble because there’s no way to pay for it. One option that progressives are considering is simply NOT paying for it.

Nancy Pelosi thinks she can get a House vote on both bills by Sept. 27. But it’s highly unlikely that the Senate would go along, which might produce a stalemate that could persist for many weeks. A budget resolution thus won’t be ready when the fiscal year starts on Oct. 1, which would require a continuing resolution lasting well into December.

3. Complicating all of this will be an increasingly urgent issue — raising the federal debt ceiling, which already has been exceeded. Treasury Secretary Janet Yellen is relying on “extraordinary measures” to keep the government afloat, avoiding a default. Republicans are adamant that they will not raise the ceiling, so Yellen will need virtually every Democratic vote, which is far from certain.

The debt ceiling always gets raised, but this time will be nerve-wracking, amid threats of a government shut-down. Can massive infrastructure bills win passage in this climate? A major haircut will be required, which could force angry House progressives to oppose infrastructure spending rather than accept pared-back bills.

* * * * *

JUST AS THE AFGHANISTAN DEBACLE threatened to cripple Biden’s presidency, Democrats caught two breaks —

First. The radical Texas abortion law, empowering vigilantes and outlawing the procedure even in cases of rape or incest, has given the Democrats an emotional issue. Polls show a majority of Americans favor Roe v. Wade; this issue could energize young and female voters. Republicans are still favored to capture the House next fall, but that could be a closer call because Texas Gov. Greg Abbott has over-played his hand.

Second. The likelihood of a comfortable win by Gavin Newsom in his California recall election on Sept. 14 will elevate the embattled governor. If he wins fairly easily, as we expect, Newsom will instantly become a star in a party that needs fresh blood. Another major player will be Eric Adams, the African-American ex-cop, who will easily win the New York City mayoral election on Nov. 2.






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.

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.

©2021 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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