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A Stimulus Bill Won’t Move Quickly

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Insights and Market Perspectives

A Stimulus Bill Won’t Move Quickly

Author: Greg Valliere

March 10, 2020

THERE’S A CONSENSUS ON CAPITOL HILL that Washington has to do something, but there’s no consensus on what, or how much. Many members of Congress want to leave town; they work in a virtual petri dish, with more members likely to self-quarantine in coming days.

SO WE WOULD RECOMMEND LOWERING EXPECTATIONS that a truly significant stimulus bill can pass any time soon. First, the White House has to convince Republicans that a payroll tax cut is a good idea; many disagree. And the GOP is lukewarm about big new spending plans for programs like paid sick leave, major aid to sectors like airlines, etc.

MANY DEMOCRATS, ON THE OTHER HAND, subscribe to the famous (or infamous) line from Rahm Emanuel, who once proclaimed that “you never let a serious crisis go to waste.” They have a long list of spending goals that now could pass, even if it means negotiating with a president they despise.

WHAT CAN PASS: A temporary payroll tax cut will win grudging GOP support; it could cost upwards of $300 billion. Democrats will win funding to support sick leave, more generous unemployment benefits, additional food stamp spending, and other aid to victims. Both parties will win temporary aid for companies, especially in the tourism industry, and perhaps for airlines. A proposal to temporarily waive all tariffs has not gained traction.

THIS APPARENTLY WILL BE ACCOMPANIED by more monetary stimulus, as the Fed provides vastly more liquidity and considers loosening lending standards. Since the market almost unanimously expects a 50 basis point rate cut later this month — and even more later in the spring — the Fed apparently is prepared to waste its remaining bullets, a risky move in our opinion, but the markets are counting on it.

A WASHINGTON RESPONSE TO THIS CRISIS is mandatory, but in truth relief for the markets may come from elsewhere: first, signs that new cases of the virus are diminishing, which is clearly occurring in China; second, a truce between Saudi Arabia and Russia on oil production; and third, a mammoth de facto tax cut because of cheap gasoline and a massive refinancing boom. Show us progress on those three issues, and we’ll get bullish in a hurry.

IN THE MEANTIME, THE GOAL IN WASHINGTON should simply be not making this crisis any worse, through confusing communication. A modest stimulus package, hopefully enacted by the end of this month, can’t hurt, but this morning the markets are viewing a stimulus bill as a panacea, and that’s unrealistic.
* * * * *
A DIVERSION FROM THE CRISIS will come this evening as results pour in from several primary elections. We expect Joe Biden to win the most important race — in Michigan — while easily winning Mississippi and modestly prevailing in Missouri. Bernie Sanders could win in Washington state.

THESE RESULTS COULD EFFECTIVELY END THE PRIMARIES, although Sanders may hang on until some big elections a week from now in Illinois, Ohio and Florida. An overwhelming majority of African-American support for Biden will make the difference in all of these states.

DEMOCRATS ARE MORE THAN SIMPLY RESIGNED TO BIDEN, they like him and think he has a chance to defeat Trump. Perhaps, but Republicans are planning on a two-pronged attack. First, the Hunter Biden hearings are about to begin; second, Trump and his allies have flatly asserted in recent fundraisers that Biden is senile.

THE FEROCITY OF ATTACKS ON BIDEN may backfire on Republicans. And their electoral prospects are vastly complicated by the pandemic — Trump never planned on the coronavirus, and he certainly never expected to be at risk of actually contracting it.


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.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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