Infrastructure and Tax Hikes — Months to Go; Elizabeth Warren and Archegos
Author: Greg Valliere
March 31, 2021
THE DEVIL’S IN THE DETAILS: President Biden will present the broad outlines of infrastructure reform today, but our sources believe it will be Memorial Day or later before a bill comes into clear focus.
THE MAJOR ROADBLOCK will be wrangling over the composition of tax hikes that theoretically will pay for much of Biden’s bill. As we wrote yesterday, the public wants to tax “the rich” and big corporations, but Republicans in Congress are virtually unanimous in opposition to new taxes.
TO COMPLICATE THIS DEBATE, several Democratic House members from high-tax states are threatening to vote against the infrastructure bill unless it abolishes reforms to state and local tax write-offs, which was included in the Trump tax bill. This so-called SALT provision has become a major issue.
NOT EVEN THE INFRASTRUCTURE PRICETAG IS CLEAR, as Biden apparently will not call for $3 trillion in new spending, as reported over the past weekend. In his speech today in Pittsburgh, Biden is expected to call for $2.25 trillion over eight years, an amount that activists immediately denounced as insufficient.
WE’LL HAVE PLENTY OF TIME to analyze the details as this bill moves slowly through both houses this spring. For now, it appears that Biden wants to spend about $650 billion to rebuild the country’s infrastructure, such as its roads, bridges, broadband, highways and ports.
THE PLAN WILL ALSO will include about $400 billion for home care for the elderly and the disabled, $300 billion for housing infrastructure and $300 billion to revive U.S. manufacturing (making an argument that the U.S. has to compete more aggressively against China).
AND IT WILL PROPOSE hundreds of billions of dollars to upgrade the nation’s electric grid and revamp the country’s water systems to ensure clean drinking water, among other major investments, the Washington Post reports this morning.
BOTTOM LINE: Biden will get something by autumn, which would heat up an economy that should be sizzling by then. There’s widespread agreement that the nation’s crumbling infrastructure needs help, and enough members of Congress concur. But they do not agree on the specifics of how — or whether — to pay for this.
THE BOND MARKET thus could face the worst of all scenarios — massive new spending programs without significant tax hikes to pay for them.
* * * * * *
ELIZABETH WARREN HAS AN ISSUE: What a field day for the progressives — the Archegos trading fiasco, which unquestionably will be the subject of Congressional hearings in April and pressure on regulators to investigate the hedge-fund industry, family offices, and allegedly light oversight.
WARREN TOLD CNBC YESTERDAY that the Archegos meltdown “had all the makings of a dangerous situation — a largely unregulated hedge fund, opaque derivatives, trading in private dark pools, high leverage, and a trader who wiggled out of the SEC’s enforcement.”
WITHOUT TRANSPARENCY AND STRONG OVERSIGHT, Warren declared, “the next hedge fund blowup could take the economy down with it.” We expect Warren to introduce legislation in the Senate Banking Committee that would target hedge funds, stock buybacks, excessive leverage, etc.
PASSAGE OF A TOUGH BILL in the 50-50 Senate will be difficult, but the industry faces headline risk and numerous hearings this spring that will pressure the activist regulators who have been appointed by Biden. These regulators want to send a message to the financial services industry.
* * * * * *
EDITOR’S NOTE: Barring a bombshell, we’ll take a few days off, leaving Washington and the growing threat of getting bitten by Major, the angry Biden German Shepherd who has struck again. Major may be permanently banished to Delaware, but we’ll be back on Tuesday morning . . .
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.