Forget Impeachment — Congress Agrees on a Major Compromise

by Greg Valliere, AGF Management Ltd.

AMID THE IMPEACHMENT DIN, there’s real news from Washington as Congress races toward adjournment in a week and a half, looking for compromises. A NAFTA replacement treaty is close to ratification, and now there’s a major breakthrough on a defense measure that’s largely a victory for President Trump, with two provisions that will reverberate for decades to come.

BOTH PARTIES HAVE AGREED on a $738 billion fiscal 2020 defense bill that will create a new Space Force, a top priority for Trump as the U.S., Russia and China begin the militarization of space. Trump undoubtedly will portray this as a major political victory, but Democrats can brag that they won 12 weeks of paid parental leave for federal workers, a top priority of Ivanka Trump.

ONLY A CHRISTMAS GRINCH would complain about the price-tag; neither of these provisions are paid for, as the Washington spending binge continues unabated. The measure didn’t even accept curbs on Trump’s ability to spend more money on a wall with Mexico. It also includes a 3.1% salary increase for military personnel.

WE HAVE LONG ARGUED THAT THE PUREST INVESTMENT PLAY in Washington is the defense sector, and there’s nothing in this bill to refute that assertion. The desire to spend more on defense is so great that the measure contains funding for 12 more Lockheed F-35 fighter jets than the White House requested. Major increases, as expected, were agreed upon for Naval destroyers, frigates, amphibious warships, etc. Shipbuilding has been a major investment play; space-based defense will be the new frontier.

THE 3,488-PAGE MEASURE INCLUDES SANCTIONS against North Korea and Turkey but the biggest impact of this bill will be the creation of a 6th branch of the military — the Space Force, which will report to the Air Force secretary. The bill creates a chief of space operations, who will be a member of the Joint Chiefs of Staff. This is a big deal, a legacy issue for Trump.
* * * * *
THE IMPEACHMENT BANDWAGON: With a House vote to impeach just days away, the only suspense is whether there will be defections in either party. We think it’s possible that no Republican in the House will vote to impeach; ironically, Nancy Pelosi has to worry about her own defections, perhaps up to a dozen. But she clearly has the vote to impeach, setting up a Senate trial beginning in January.

NO CHANGE IN THE SENATE: Assuming all 47 Democrats vote to convict (and that’s not a certain assumption), there would have to be 20 Republican defectors to hit 67 votes, the total needed to oust Trump. There’s a chance that GOP Sens. Susan Collins, Lisa Murkowski and Cory Gardner could defect, but that would still leave the Democrats 17 votes short.

MAYBE THERE COULD BE FIVE TOTAL GOP DEFECTORS in the Senate — but maybe there could be none. In any event, as we have asserted for the past year, 20 defectors seems out of the question. Our mantra persists: if you want Trump out, vote him out.


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), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. 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.

© 2019 AGF Management Limited. All rights reserved.

This post was first published at the AGF Perspectives Blog.

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