What are the Chances? We Handicap the Key Issues
Author: Greg Valliere
July 15, 2021
THERE’S SO MUCH TO COVER RIGHT NOW — and so much where final outcomes aren’t clear. So let’s do a Lightning Round this morning, offering our odds on a wide range of issues:
Infrastructure Bill: A $1 trillion package of aid for highways, bridges, water, broadband, etc. could bog down if there’s no guarantees of a second bill, and it’s unclear how this will be paid for. But chances are still slightly higher than 50% that a basic infrastructure bill will pass before the August recess.
Budget Resolution: Drunk with visions of spending another $3.5 billion, Democrats will ram a budget resolution through Congress. Chance of getting this before the recess: 40%. Chance of getting this done in the fall: 60%.
Tax hikes: they’re still on the table but not all Democrats are on board. Chance of hikes on corporations and the wealthy: 60%. Chance of changes to capital gains rates and inheritance taxes: 45%. Chance of Janet Yellen’s corporate minimum tax: 40%, the Senate may rebel.
Debt ceiling: Yellen wants it raised before the recess, but like her predecessors, she will have to get creative to keep the government running. Chances the ceiling will be raised before the recess: 30%. Chances it will be raised by October: 100%.
Fed tapering of asset purchases: It’s not imminent, and when it starts this winter it will be very, very gradual. The Fed has “gone big” on economic growth. Chance of tapering any time soon: 30%.
Economic boom: From restaurants to airports, the country is red hot. We don’t quite get the nervousness about a slowing economy. It may go from great now to merely good by next year, but the surging labor market virtually guarantees strong real disposable income. Chance of a recession in the next year: 10%.
The three biggest impediments to growth: Chances the labor shortage will gradually subside: 70%. Chances that bottlenecks at harbors ease any time soon: 30%. Chances that the semiconductor chip shortage ends this fall: only 20%.
Budget deficits: $3 trillion in annual red ink is now the norm. Republicans don’t get much traction on this issue because the markets seemingly don’t care. Chance of meaningful spending restraint: Zero percent.
Afghan fallout: The Taliban will control most of the country by fall, and the inevitable reprisals — especially against activist women — will be terrible. Chance this will become an embarrassment for Biden: 80%.
Cuban resistance: We’d love to predict that the Communist dictatorship will be overthrown, but the uprising will be ruthlessly crushed. Chance of a successful uprising: 20%.
Relations With China: Biden can read the polls — people in both parties overwhelmingly think Beijing is a villain: Covid, treatment of dissidents, spying, etc. Chance that relations between the U.S. and China will get worse before they get better: 70%.
The 2022 elections: History (and the 2020 census) point to a GOP House takeover next year, but if the economy is strong and inflation has subsided, Democrats will have a chance. Chance that Republicans regain control of the House: 60%.
The progressive agenda: We simply don’t see enough support for voting reform, expanding the Supreme Court, police reform, killing the filibuster, making the District of Columbia a state, etc. Chances for any of these bills: 20%.
Marijuana legality: There’s tremendous client interest in this lucrative issue but while states may continue to reform their laws, Washington is lukewarm. Chance of federal legalization any time soon: 30%.
Supreme Court: It’s been an interesting session; the court isn’t as conservative as many experts anticipated. The big story this summer may be the retirement of liberal judge Stephen Breyer, 82. Chance he will step down: 70%.
Regulatory reform: Wow, the Biden regulators are far to the left ideologically, especially on antitrust and competition. But for now, it’s mostly headline risk for major industries, and then there will be court challenges. The mood between Washington and big business will become quite adversarial, but chances this will affect corporate earnings any time soon are only 25%.
The assault on fossil fuels: This is no hype, the Biden Administration wants to outlaw any federal aid to coal, oil and natural gas. New drilling will be verboten. Chance that this city’s antipathy to fossil fuels will subside: 10%.
Covid: And finally, the great wild card for the past 18 months may be the great wild for the next 18 months as variants continue to erupt. Chance that booster shots will be needed this fall: 80%.
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.