AGF Management : Manchin and Democrats May Revive Spending Bill

Insights and Market Perspectives

Author: 8

January 25, 2022

THE BUILD BACK BETTER BILL is still alive, as Congress considers passing
chunks of the measure. But with Sen. Joe Manchin proclaiming that debate will have to "start from scratch," this will be complicated, especially as a Feb. 18 deadline to keep the government funded looms over 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, over what Manchin would accept in a revived BBB bill.

TWO COMPETING NARRATIVES: As this debate resumes, the Big Picture issue is whether more stimulus is really needed. Manchin and every Republican in Congress believes that inflation has been exacerbated by blowout spending.

THE OTHER NARRATIVE: Democrats worry about a November election debacle, so they see the proverbial train leaving the station on massive climate spending, child care, expanded Obamacare, prescription drug price controls, etc. If they don't get this in 2022, a Republican House surely would balk in 2023-24.

A COMPLICATION IS THE FEB. 18 DEADLINE for funding the government - a shutdown isn't out of the question. Republicans aren't enthusiastic about passing a bill; they would prefer to pass still another extension, which would lock in spending at last year's levels - a de facto beginning of fiscal restraint, which the GOP believes is necessary because of inflation.

A BUILD BACK BETTER BILL probably will not be tied to a Feb. 18 budget package, because that deal will be elusive, and it may take many weeks before Manchin could embrace any scaled-back BBB bill.

STILL ANOTHER COMPLICATION is how many shots the Democrats will get for a bill that could pass via the budget reconciliation process, which would require only 50 votes (plus a Kamala Harris tiebreaker) to pass. Joe Biden now favors passing BBB in "chunks" but it's unclear whether there would be enough opportunities under budget rules.

WHAT IS CLEAR is that the Democrats - including Manchin - are still committed to new spending for health benefits, pre-kindergarten education, and a huge package of environmental spending. These goals are still alive; expanded child tax credits may not be alive, because Manchin will resist that very expensive provision.

WHAT'S THE VEHICLE? As the Democrats desperately seek a deal - any deal - it strikes us that their goal should be attaching it to another bill that is likely to pass. A Feb. 18 budget deal probably will stall, so the vehicle to watch is the China competitiveness bill, which would fund spending on semiconductor chips and more U.S. manufacturing. It has widespread bipartisan support.

MARKET IMPACT: If a BBB measure is revived this spring, which is likely, the new spending would be relatively modest. The big concern for investors would be tax hikes that may be in the measure, focusing on very wealthy individuals and highly profitable corporations, both of which aren't out of the woods yet.

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

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.

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.