The Case Against a Rate Cut; The Markets Have to Worry About Elizabeth Warren
Author: Greg Valliere
June 17, 2019
PROSPECTS FOR U.S. ECONOMIC GROWTH picked up last week with the release of solid May retail sales figures, plus a strong upward revision for the previous month. The closely watched Atlanta Fed GDP forecast jumped from 1.4% for this quarter to 2.1%. Does this warrant a rate cut on Wednesday? We don’t think so.
WE FULLY UNDERSTAND the need for insurance policies, and we appreciate that inflation is a little below the Fed’s targets (although higher tariffs on thousands of products could change the inflation outlook later this year). The FOMC, whuch meets tomorrow and Wednesday, will have to consider the possibility that the economy simply hit a soft patch in April and is now back on a 2%-plus growth patch — so why waste ammunition when it’s not definitely needed?
WE THINK THE FOMC STATEMENT on Wednesday will leave the door open for a rate cut later this summer, but there’s been a constant in Jerome Powell’s mantra: the economy is in decent shape, with no recession in sight despite trade headwinds. A solid jobs report in two weeks could make a Fed rate cut this week look panicky — and, perhaps, a bit too deferential to Donald Trump.
* * * * *
WHEN WE MEET WITH CLIENTS, retail and institutional, there a good chance that the mere mention of Elizabeth Warren will elicit hisses and boos; she’s viewed as the arch-enemy of our industry. Warren wants to break up large financial firms and she wants to dramatically increase regulatory supervision — and her charges that corporate America is “unpatriotic” may be gaining traction in Iowa.
POLLS NOW SHOW WARREN has moved into second place in the Democrats’ sweepstakes, ahead of Bernie Sanders and gaining on Joe Biden, who’s about to become a juicy target in upcoming debates. Could Warren actually win the nomination? We don’t rule it out. Could she actually win the presidency? She’s probably too polarizing, but when Fox News shows Donald Trump clearly trailing most Democrats, anything could happen; Trump’s path to 270 electoral votes won’t be easy.
EVEN IF SHE DOESN’T WIN THE NOMINATION, Warren — who turns 70 this week — will demand a steep price for her support, especially if there’s a threat of a deadlocked convention. If she eventually endorses Biden, would she demand the VP nod? Or appointment as Treasury Secretary? She reportedly has eyed the latter job, which would send shudders throughout Wall Street.
IT WILL BE NEARLY A YEAR before the Democrats’ nominee will be clear, plenty of time for Beto O’Rourke or Julian Castro or Kamala Harris to have their own surges, becoming the next hot candidate. As Warren will discover, being a front-runner will make her a target. But her anti-corporate issues — as well as Sanders’ unabashed socialism — are resonating in the activist base.
BIDEN NEEDS TO SHOW he stands for something other than opposition to Trump; polls from Fox and others show he’s not the only Democrat who can win, which seemingly weakens his strongest argument — only he can win. For now, we think Warren has the best staff in Iowa and a catchy slogan — “I have a plan for that” — and she suddenly is on a roll, a candidate Wall Street has to take very seriously.
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), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. 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.
© 2019 AGF Management Limited. All rights reserved.