Outside of reconciliation, the only way the debt ceiling gets resolved is if one party caves, which is never easy to do

DEMOCRATIC DIVISIONS OVER THE SPENDING PACKAGE EXPLODED OVER THE WEEKEND

Last Thursday Strategas (one of our research partners) outlined all of the troubles Democrats were having in moving their agenda forward and that the infrastructure vote was likely to be delayed. The delay of the infrastructure package did materialize but during that process, we saw a level of optimism emanating from Congressional leadership that a deal could take place on Friday. Senator Manchin put out his price tag Thursday afternoon, giving the process a bookend for potential outcomes. In a Strategas research update on Friday, they noted a deal could happen quickly if both sides were ready to compromise. They could not have been more wrong. Instead, we are back where we started with Democratic leadership pushing more spending than moderates are willing to accept, President Biden telling Democrats that infrastructure is again linked to the larger spending package, Pelosi delaying the timeline by a month, and activists pushing Senator Sinema to support Build Back Better. In the span of three days, the progress made towards a resolution seems to have stalled out entirely.

The consensus is now lowering both the odds of a spending package going through and the size of that package if it goes through. For a deal to happen we need to see: 1) An agreement on the topline spending number with Pelosi/Biden at $2.1 trillion and Manchin at $1.5 trillion; 2) An agreement on how to fit $3.5 trillion of spending into a $1.7 trillion package; 3) Smaller tax increases and pharma cuts and 4) President Biden to engage and communicate.

ONE PARTY NEEDS TO CAVE TO SOLVE THE DEBT CEILING

The debt ceiling remains the short-term risk from Washington. The only way it gets solved is if one party caves, which is never easy to do. The debt ceiling can be raised at any time regardless of the larger spending package. There is a tendency to conflate the debt ceiling with the spending package because of the timing and the use of reconciliation. Still, the absence of a spending deal last week further complicates the need to raise the debt ceiling. We expect this week’s vote on the debt ceiling to fail in the Senate. This will create an inflection point when Senate Democrats need to make a decision on whether to raise the debt ceiling through reconciliation or push it to the brink by challenging Republicans to vote for the debt ceiling.

If Democrats choose the reconciliation route later this week, the risk from the debt ceiling collapses. But if the reconciliation route is not taken, Republicans and Democrats will be engaged in a game of chicken as the deadline approaches. As such, the level of risk from the debt ceiling will be determined by the path taken.

Two paths for Congress to raise the debt ceiling:

  • Regular Order: Requires 60 votes in the Senate and thus requires 10 Republicans to vote in favor. We will have a vote this week under regular order and the vote will fail. Republicans have little interest in voting for the debt ceiling when Democrats can do it without Republican votes through reconciliation and have already started the reconciliation process to spend trillions of dollars
  • Budget Reconciliation: Reconciliation requires just 51 votes in the Senate, meaning the Democrats can raise the debt ceiling without Republican votes. Last week the Senate Parliamentarian ruled that the Democrats can use reconciliation to raise the debt ceiling and can do it separately from the larger spending package. Democrats do not want to go this route because: 1) They want cover from Republicans before voting for the debt increase; 2) They are worried the debt ceiling amendment process will cut their spending package even if it is a nonbinding vote; 3) It’s time consuming (takes about a week); and 4) It distracts from the larger spending negotiations.

THE LEVEL OF RISK AROUND THE DEBT CEILING WILL BE DETERMINED BY THE PATH TAKEN BY THE SENATE

Short-term yields are rising as the market sees less possibility of the debt ceiling being raised in the first half of October. A spending deal last week would have made it easier for Democrats to get the debt ceiling higher, but with the spending deal delayed, the debt ceiling now sits in in the middle of those negotiations. Ultimately, the path chosen this week will determine the level of risk. Democrats have the votes to raise the debt ceiling without Republicans, which is why the reconciliation route is less risky.

WE DISAGREE WITH THE MARKET: FAILURE OF THE SPENDING PACKAGE IS A BULLISH EVENT

We get the sense that financial markets are welcoming the large $3.5 trillion spending package from a macro perspective. We disagree as we see the tax increases as immediate, the spending delayed, and the tax increases much more negative for growth than the spending. Of course, the final details will matter. But there seems to be a complacency that tax increases won’t matter much and the spending is a cushion for future growth. Still, earnings pressure is rising and the tax bill shaves 5% off 2022 earnings. This does not include the pharma cuts or the tobacco tax increases. Nearly every company will get an earnings hit. Only a few companies get the benefit from spending.

Source: Strategas


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 


 

Latest News

 

Evergrande Shares Halted Amid Report of Unit Stake Sale

China Evergrande Group and its property-services arm were halted in Hong Kong stock trading amid a report that the developer agreed to sell a

Bloomberg
Oct 3, 2021

Read Story

 

OPEC and its allies will meet to decide whether to raise ...

Some analysts expect the group, known as OPEC Plus, to sign off on a plan to increase production by a modest 400,000 barrels a day next month, under a deal reached in July.

New York Times
Oct 4, 2021

Read Story

 

Broader Inflation Pressures Are Beginning to Show

Some indexes that strip away price changes due to idiosyncratic swings in supply and demand show inflation running ahead of the Fed's 2% target.

Wall Street Journal
Oct 4, 2021

Read Story

 


Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

Disclosures:
Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if Fortem is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of Fortem or its representatives by any of its clients. Rankings published by magazines and others are generally based on information prepared and/or submitted by the recognized advisor. Awards may not be indicative of one client’s experience or of the Firm’s future performance. Neither Fortem nor the recognized advisor has paid a fee for inclusion on a list, nor purchased any additional material from the award provider. The criteria for each award is listed below:

Five Star Professional Disclosure:
The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
Fortem Financial 2016. All rights reserved.

Data Sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market Data: Based on reported data in WSJ Market Data Center (indexes); U.S. Treasury (Treasury Yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.

Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. The opinions expressed are solely those of the author, and do not represent those of Fortem Financial, LLC or any of its affiliates. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Forward looking statements are based on current expectations and assumptions, the economy, and future conditions. As such, forward-looking statements are subject to inherent uncertainty, risks, and changes in circumstance that are difficult to predict. Actual results may differ materially from the anticipated outcomes. Carefully consider investment objectives, risk factors and charges and expenses before investing. Fortem Financial is a registered investment adviser with the SEC. Advisory services are offered through Fortem Financial.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighed index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

Fortem Financial

Recent Posts

PRIVACY NOTICE REGARDING CLIENT PRIVACY

Fortem Financial Group, LLC, has adopted this policy with recognition that protecting the privacy and security of the non-public personal information we obtain about our customers is an important responsibility.

All financial companies choose how they share your non-public personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your non-public personal information. Even when you are no longer our customer, we will only share your non-public personal information as described in this notice. So, please read this notice carefully to understand what we do.

The types of non-public personal information we collect and share depend on the product or service you have with us. This information can include items such as your Social Security number and income, your account balances and transaction history, and your investment experience and account transactions.

We collect your non-public personal information in a variety of ways. For example, we obtain your non-public personal information when you open an account or give us your income information, tell us about your portfolio or deposit money, or enter into an investment advisory contract. We also collect your non-public personal information from other companies. For example, from the custodians who hold your account assets.

All financial companies need to share customer’s non-public personal information to run their everyday business. Below, we describe the reasons we can share your non-public personal information and whether you can limit this sharing.

We share your non-public personal information for our everyday business purposes such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, report to credit bureaus, to protect the confidentiality or security of your records, or as permitted by law. We may also share your non-public personal information for our own firm’s marketing purposes; so that we can offer our products and services to you.

Federal law gives you the right to limit only sharing non-public personal information about your credit worthiness for our affiliates’ everyday business purposes; sharing non-public personal information about you with our affiliates to market to you; and sharing non-public personal information with non-affiliates to market to you.

We don’t share non-public personal information about your creditworthiness with our affiliates for their everyday business purposes. We don’t share your non-public personal information with our affiliates to market to you. We don’t share your non-public personal information with non-affiliates to market to you. We also don’t share your non-public personal information for joint marketing with other financial companies. State laws and individual companies may give you additional rights to limit sharing.

We share non-public personal information with our parent company affiliate, Focus Financial Partners, Inc, for its internal and external auditing purposes. We also share your non-public personal information with a non-affiliate for the purpose of aggregating it and providing summary information based on this data to our parent company, Focus Financial Partners, Inc.

To protect your non-public personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.

Our policy about obtaining and disclosing non-public personal information may change from time to time. We will provide you notice of any material change to this policy before we implement the change.

If you have questions please call us at 760-206-8500 or go to our website at www.fortemfin.com.

IMPORTANT CONSUMER DISCLOSURE

Fortem Financial Group, LLC ("Fortem Financial" or the "Firm") is a federally registered investment adviser with offices in California. Fortem Financial and its representatives are in compliance with the current registration and notice filing requirements imposed upon federally registered investment advisers by those states in which Fortem Financial maintains clients. Fortem Financial may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements.

This website is limited to the dissemination of general information regarding the Firm's investment advisory services offered to U.S. residents residing in states where providing such information is not prohibited by applicable law. Accordingly, the publication of Fortem Financial' website on the Internet should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment, tax or legal advice. Furthermore, the information resulting from the use of any tools or other information on this website should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from Fortem Financial. Any subsequent direct communication from Fortem Financial with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. Fortem Financial does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to this website or incorporated herein, and takes no responsibility therefore. All such information is provided for convenience purposes only and all users thereof should be guided accordingly.

All statements and opinions included on this website are subject to change as economic and market conditions dictate, and do not necessarily represent the views of Fortem Financial or any of their respective affiliates. Past performance may not be indicative of future results and there can be no assurance that any views, outlooks, projections or forward-looking statements will come to pass. Investing involves risk, including the potential loss of principal, and the profitability of any particular investment strategy or product cannot be guaranteed.

Any rating referenced herein may not be representative of any one client's experience. Further, the Firm's receipt of any rating is not indicative of the Firm's future performance. The Charles E. Merrill Circle of Excellence award is granted by Merrill Lynch for outstanding client service and satisfaction. The award is granted based on annual criteria established by Merrill Lynch for its top decile advisors. The Barron's Top 1,200 Financial Advisors rating of the top financial advisors in the United States is based on data provided by participating firms. The following factors are included in the rankings: assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work. Investment performance is not an explicit component. The Five Star Professional award is granted by Five Star Professional and recognizes service professionals who provide quality services to their clients based on data provided by participating firms. The award is granted based on the following ten objective eligibility and evaluation criteria: credentialed as an investment advisory representative (IAR) or a registered investment advisor; actively employed as a credentialed professional in the financial services industry for a minimum of five years; favorable regulatory and complaint history review; fulfilled their firm review based on internal firm standards; accepting new clients; one-year client retention rate; five-year client retention rate; non-institutionalized discretionary and/or non-discretionary client assets administered; number of client households served; and educational and professional designations. Feedback from consumer surveys will augment a regulatory history review. Firms have the option to provide input on award candidates from their firm, regardless of the nomination source. The Palm Springs Life's "40 Under 40" Rising Young Professionals to Watch in the Coachella Valley is based upon nominations from the local business community and selected by the staff of Palm Springs Life.

For information pertaining to the registration status of Fortem Financial, please refer to the Investment Adviser Public Disclosure website, operated by the U.S. Securities and Exchange Commission, at www.adviserinfo.sec.gov., which contains the most recent versions of the Firm's Form ADV disclosure documents.

ACCESS TO THIS WEBSITE IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND WITHOUT ANY WARRANTIES, EXPRESSED OR IMPLIED, REGARDING THE ACCURACY, COMPLETENESS, TIMELINESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS WEBSITE OR ANY THIRD PARTY WEBSITE REFERENCED HEREIN.