The Great Geopolitical Threat; Infrastructure Bill Moving; Inflation Data This Week
Author: Greg Valliere
August 9, 2021
THE GREAT GEOPOLITICAL THREAT TO THE U.S. isn’t Russia, despite its hacking. The great threat isn’t China, despite its harsh crackdown on dissidents and its erratic treatment of Chinese companies. The great threat is Iran.
TIMED TO COINCIDE WITH THE INAUGURATION of a new extremist president, Ibrahim Raisi, Iran and its proxies have ramped up tensions in the region. Hezbollah has fired rockets into Israel and Iran almost certainly was behind the recent attack on an Israeli-owned tanker in the Persian Gulf. A retaliation from Israel’s new leadership is virtually certain in coming days.
RAISI IS WIDELY VIEWED AS COMPLICIT in the mass executions of dissidents in Iran in the 1980s. He received tepid support this spring from voters, who are restive over an economic crisis, water shortages, and a tidal wave of Covid cases. Perhaps in an effort to divert attention from these problems, Iran may be even more aggressive in the region.
BOTTOM LINE: There are two major implications — chances of a U.S.-Iran nuclear deal have slipped significantly; and more clashes between Israel and Iran appear likely in the Persian Gulf.
THIS ESCALATION OF TENSIONS COMES as the U.S. abandons allies in Afghanistan, where atrocities are likely to increase as the Taliban takes control of virtually all of the country by September. Donald Trump wanted the U.S. out of Mideast conflicts, and it appears that Joe Biden does as well. The fanatics are ascendant; the U.S. seems disinterested.
* * * * *
GIVE CHUCK SCHUMER CREDIT, he’s been a pit bull, pushing an infrastructure bill toward Senate passage, perhaps tonight or tomorrow. Even Mitch McConnell declared this weekend that “there’s an excellent chance it will be a bipartisan success story for the country.” But here comes the hard part.
ONCE SCHUMER WINS PASSAGE of the $1 trillion infrastructure bill, he will move to the $3.5 trillion package of social spending, which needs to advance via the budget reconciliation process, which requires only 50 votes to pass, not the 60 votes to break a filibuster.
SCHUMER PROBABLY HAS THE SENATE VOTES to advance reconciliation, but House progressives will battle with moderate Democrats — and 100% of Republicans — who want to pare back the huge price tag this fall. Our bottom line hasn’t changed: the first bill has a very good chance of passing; the second one faces obstacles — and a likely haircut. The key player will be Nancy Pelosi; could she kill the entire process if the second package is pared back?
* * * * *
THE UNEMPLOYMENT REPORT: Everyone has a thought on last Friday’s job report; our take-away is that by Christmas there will be a debate over what constitutes full employment. An acute worker shortage will persist, prompting employers to offer bonuses and higher hourly wages — and those costs will be largely passed along to customers.
WITH POLITICAL PRESSURE heating up over inflation, it’s increasingly likely that Jerome Powell will have to begin tapering Fed asset purchases by this winter. Commodity prices (lumber, copper, gasoline, etc.) aren’t the issue; wage inflation is the real threat, and Powell faces a difficult choice — should he risk weakening the recovery while the Delta variant is still raging?
WE THINK HE WILL TELEGRAPH TO MARKETS that the tapering will be very gradual and that a rate hike isn’t remotely imminent. What he needs to see is some moderation of inflation data, which could come as early as this week, with CPI (Wednesday) and PPI (Thursday) rising by about 0.5%, which would be half of last month’s steamy figures.
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.
©2023 AGF Management Limited. All rights reserved.