Hints of Deals — Manchin Spending, Gun Reform, Even Ukraine
Author: Greg Valliere
May 31, 2022
ANYTHING’S POSSIBLE — and there’s growing frustration over gridlock — but the next crucial deadline doesn’t come until the August recess.
EXCITEMENT OVER DEALS began last week, when the Axios web site reported that Sen. Joe Manchin, the Democrats’ publicity-hungry maverick, had resumed negotiating with Senate Majority Leader Chuck Schumer on spending more money for environmental programs, pre-kindergarten education, prescription drug price controls, etc.
A KEY TO MANCHIN’S SHIFT is that the federal budget deficit is plunging — not because of any sudden spending restraint on Capitol Hill, but because of an explosion of receipts that have filled coffers in Washington and states like California (which is projecting an astonishing $100 billion surplus this year).
MANCHIN COULD CLAIM VICTORY on deficits, which theoretically might reduce inflation and open the door for other provisions, including tax hikes on wealthy individuals and highly profitable companies, while imposing a minimum global tax on business. But this is opposed by another unpredictable Democrat — Sen. Kyrsten Sinema of Arizona.
BOTTOM LINE ON THIS BILL: There’s only a 35% chance of passage. because of the enormous number of congressional vacation days in the next few months, which will preclude consideration of most bills. But the revival of tax hikes as an option — even if chances are below 50-50 — is something the financial markets will have to carefully monitor.
HANDICAPPING OTHER DEALS: Chances of a modest gun bill that would establish a “red flag” process to identify potential shooters: 40%. Chances of a deal on student loan forgiveness, probably capped at people making $100,000 or less: 60%. Chances of passing the Secure Act 2.0, which would reform the retirement system: 75%.
* * * * *
THE BIGGEST DEAL, OF COURSE, would be a truce in the Ukrainian war. The leaders of France, Germany, Italy and other wealthy countries fear a cold winter with food shortages, so they are desperate to bring Russia and Ukraine to the bargaining table. We’re hearing that the combatants may be willing to talk through intermediaries.
BUT NEGOTIATORS WILL ENCOUNTER TWO HUGE OBSTACLES: Russia wants all sanctions removed, while Ukraine wants pre-war borders restored. Both demands are non-starters.
THE FOCUS HAS BEEN ON STAGGERING RUSSIAN LOSSES, but much of Ukraine is in ruins, with its troop losses also soaring as the momentum on the battlefield seemingly tilts toward Moscow. But the Russian economy is plummeting, with its oil and gas revenues likely to fall significantly as the quality of living deteriorates in Moscow.
A UKRAINIAN DEAL WOULD BE AN INSTANT GAME CHANGER for the global markets, with commodity inflation subsiding, but both sides are bringing more lethal weapons into the war, which probably will grind on for months. A huge game changer could be Vladimir Putin’s health, which is becoming a legitimate issue.
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.
©2022 AGF Management Limited. All rights reserved.