AGF Management: Manchin and Democrats could revive spending bill

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Market insights and outlook

Author: 8

January 25, 2022

THE BUILD BACK BETTER BILL is still in effect, as Congress plans to pass
pieces of the measure. But with Sen. Joe Manchin proclaiming the debate will have to “start over,” it will be complicated, especially as the Feb. 18 deadline to maintain government funding looms in the budget landscape.

MOST OF US ARE CONCERNED about Ukraine, inflation, the Federal Reserve and the NFL’s unfair overtime rule — but many key Democrats are focused, once again, on what Manchin would accept in a revived BBB bill.

TWO COMPETING STORIES: As this debate resumes, the overarching question is whether more stimulus is really needed. Manchin and all Republicans in Congress believe that inflation has been exacerbated by rampant spending.

THE OTHER TALE: Democrats worry about an election debacle in November, so they see the proverbial train leaving the station on massive climate spending, child care, expanding Obamacare, controlling prescription drug prices, etc. If they don’t get that in 2022, a Republican House would surely back off in 2023-24.

ONE COMPLICATION IS FEB. 18 DEADLINE for government funding – a closure is not out of the question. Republicans aren’t keen on passing a bill; they’d rather pass yet another extension, which would lock in spending at last year’s levels — a de facto start of fiscal restraint, which the GOP believes is necessary because of inflation.

A BUILD BACK BETTER BILL likely won’t be tied to a Feb. 18 budget package because that deal will be elusive, and it may be several weeks before Manchin can pass a scaled-down BBB bill.

YET ANOTHER COMPLICATION is the number of knocks Democrats will get for a bill that could go through the budget reconciliation process, which would only need 50 votes (plus a Kamala Harris tiebreaker) to pass. Joe Biden now favors moving BBB to “pieces”, but it’s unclear if there would be enough opportunity under fiscal rules.

WHAT IS CLEAR is that Democrats – including Manchin – are still engaged in new spending on health benefits, pre-K education and a huge package of environmental spending. These goals are still alive; expanded child tax credits may not be in effect as Manchin will resist this very costly provision.

WHAT IS THE VEHICLE? As Democrats desperately seek a deal — any deal — it seems to us that their goal should be to tie it up with another bill that might pass. A Feb. 18 budget deal will likely stall, so the vehicle to watch is China’s competitiveness bill, which would fund spending on semiconductor chips and more manufacturing in the United States. It enjoys broad bipartisan support.

MARKET IMPACT: If a BBB measure is reinstated this spring, which is likely, new spending would be relatively modest. The biggest concern for investors would be the tax hikes that might be within reach, focusing on very wealthy individuals and very profitable corporations, which are not yet out of the woods.

The views expressed in this blog are those of the author and do not necessarily represent the views of AGF, its subsidiaries or any of its affiliates, funds or investment strategies.

The opinions expressed in this blog are provided as a general source of information based on information available at the time of publication and should not be considered personal investment advice or an offer or solicitation to buy and/or sale of securities. Speculations or opinions expressed about future events, such as market or economic conditions, corporate or securities performance, or other projections represent the opinions of the author and do not necessarily represent the point of view of AGF, its subsidiaries or any of its affiliates, funds or investment strategies. Every effort has been made to ensure the accuracy of these comments 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. All financial projections are based on the opinions of the author and should not be considered forecasts. 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 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 an individual’s situation.

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 advisers in the United States. AGFI is a registered portfolio manager with Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that make up AGF Investments manage a variety of mandates consisting of equities, fixed income securities and balanced assets.

Founded in 1957, AGF Management Limited (AGF) is an independent, globally diversified asset management company. AGF takes a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and wealth businesses focused on delivering an exceptional client experience. AGF’s portfolio of investment solutions spans a wide range of clients globally, from financial advisors and individual investors to institutional investors, including pension plans, corporate plans, sovereigns, endowments and foundations.

For more information, please visit AGF.com.

©2022 AGF Management Limited. All rights reserved.

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