What Are The Chances? Our Quarterly Handicapping
Author: Greg Valliere
August 7, 2023
THE UKRAINE WAR: Still the dominant story in the world today, the Ukraine-Russia war will grind on, with more drones hitting behind both enemy lines. A truce doesn’t appear to be imminent, as thousands of Russian mines slow the Ukrainian advance. We still don’t think Russia can win this war, but chances of a truce before winter are no better than 40% — down from 60% a few months ago.
THE FEDERAL RESERVE: U.S. economic growth is moderating, but sticky inflation persists on the labor front. Another rate hike could be overkill but the hawkish FOMC may prevail with one more increase. Chances of one last increase this fall: 55%.
LABOR UNREST: Calls for dramatically higher compensation will be a continuing headache for the markets and the Fed. Chances of a United Auto Workers strike in mid-September: 60%.
FISCAL POLICY CHAOS: House Speaker Kevin McCarthy gets credit for keeping his troops in line, but his good fortune may end soon. Hard-liners are determined to rip up the debt ceiling deal, with a new package that cuts spending by more than both houses agreed to earlier this summer. Chances of a government shutdown by October: 40%. Chances of a shutdown by December: 60%. the Fitch rating company will be paying close attention.
STILL ANOTHER DONALD TRUMP INDICTMENT: Trump faces one more challenge — a looming indictment in Georgia for his attempt to pressure state officials to change the 2020 vote total. Chances of a Trump indictment in this case: 75%.
THE ELECTION NO ONE WANTS: Joe Biden has lukewarm support among Democrats as his 81st birthday approaches this fall, and he faces increasing scrutiny over his business dealings with Hunter Biden. Chances of impeachment: 40%. Chances of conviction: 20%. Chances that this scandal will inflict major political damage on Biden: 70%.
COULD DONALD TRUMP THROW IN THE TOWEL? His polls didn’t look very good this weekend; an increasing percentage of Americans oppose him serving another term. But the chances that Trump wins the Republican nomiination are 70%. Chances that he wins the general election: 40% — can’t rule it out. As for him throwing in the towel, chances are about 20% — if that.
THIRD PARTY FEVER: A Biden-Trump campaign almost certainly would prompt a serious third party challenge — and Sen. Joe Manchin has the name recognition to make things interesting. Chances of new candidates emerging this fall: 60%. Chances of a third party candidate winning the presidency: 5%.
INERTIA ON THE ISSUES: Everyone in Washington suddenly has an opinion on AI, but there’s virtually no consensus on new policies. (There still isn’t much of a consensus on any tech or regulatory issue.) Other key issues — chances of Social Security or Medicare reform, 20%. Bank reform, including clawbacks on executive compensation, 60%. Chances of a cap on insulin prices, 60%. Chances of a railroad safety bill, 40%.
BACK TO FOREIGN POLICY: Chances of a significant trade and diplomatic breakthrough between China and the U.S.: 30%. Chances of an agreement between the U.S. and Iran, lowering tension in the Persian Gulf: 20%.
COLD FEET ON SPENDING “Bidenomics” hasn’t caught on, because inflation still spooks voters. So the pendulum is shifting on Capitol Hill toward more fiscal restraint, with an increasingly vocal minority calling for slower growth of defense spending, especially for Ukraine. This could be the biggest wild card of all as the fall approaches.
EDITOR’S NOTE: The Dog Days have arrived, and we won’t publish every day during the month of August — probably two or three times a week. Enjoy the summer . . .
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