The Dysfunction Persists — Five Key Points

by Greg Valliere, AGF Management Ltd.

Insights and Market Perspectives

Author: 8

October 1, 2021

The Dysfunction Persists — Five Key Points
October 1, 2021
THE FRENZIED NEGOTIATIONS have failed; the rancor on Capitol Hill is intense. You’re probably as sick as we are of the infrastructure fiasco, so we’ll keep it brief this morning, with five major take-aways after this week’s debacle:

1. Joe Biden, in free-fall: He’s been president for only eight months, so it’s too soon to declare a failed presidency. But Biden is in a disastrous slump. His supporters have asserted that he’s a master negotiator; maybe he was 40 years ago, but he isn’t now. A Republican takeover of the House next year is increasingly likely — the issue is the size of their rout.

2. This week’s dysfunction bodes poorly for the debt ceiling fight: The longer Democrats continue to fight over the infrastructure bills, the greater the threat of a late October default. Mitch McConnell refuses to negotiate, and the Democrats cannot agree on the terms of surrender. We reiterate that the Federal Reserve will have to intervene.

3. All bets are off on tax hikes: Moderate Democratic Sen. Kyrsten Sinema is adamantly opposed to any new taxes, and she has the power to kill a deal that includes taxes. The growing likelihood of no new corporate or individual tax hikes — or, at worst, some modest hikes — is a positive story for the markets.

4. Joe Manchin, drunk on power: The other Democratic holdout in the Senate, Manchin has a list of demands that are bordering on the ridiculous. In addition to a mammoth cut to the $3.5 trillion social spending bill, Manchin wants the Federal Reserve to speed up its tapering of asset purchases. So does Joe Manchin want to dominate monetary policy as well as fiscal policy?

5. More talks to come: We would recommend a cooling off period for a few days, but the House will be back is session today. A vote on the $1 trillion basic infrastructure bill is still possible today, but Nancy Peolsi doesn’t have the votes; progressives insist on passing the second bill concurrently. The stalemate will persist unless Manchin and Sinema cave.

WE THOUGHT DURING THE SUMMER that chances of passing these two measures were no better than 60-40, with the social spending bill facing a major haircut. Even that scaled-back outcome is now in grave jeopardy.


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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