Update on Politics and Omicron
by Hodges Private Client Team, on Dec 21, 2021
Some interesting news on the political front emerged Sunday morning. Senator Joe Manchin-D, W. Virginia made a final announcement that he will not be aligning with his party in voting for President Biden’s Build Back Better Plan. Mr. Manchin has always been more of a moderate Democrat, and after his sound byte from about 6 weeks ago (potentially hinting that he might change political parties), this should come as no surprise.
I have always cautioned folks about bringing their politics into the investing realm, because it will usually cause a person to make the wrong decision at the wrong time. I have also never put much faith in campaign promises or newly elected presidents making huge asks. I think they do this because they know they have a certain amount of momentum, so why not make a splash? Build Back Better might have been the biggest ask of all time, so it is not surprising that it was tossed around, whittled down, and hotly debated. There were huge potential tax ramifications across the board; income, cap gains, carried interest, and estate. Biden even wanted these instituted retroactive to early 2021! Some clients were absolutely freaking about having to redo all their tax and estate plans. I cautioned them to not jump the gun, recalling that Obama gestured many of these items in his 2nd term that ended up disintegrating in short order. You must wait and see how things pan out before making these types of changes.
Is this the final, final for the proposed spending bill? It remains to be known at this time. However, when congress reconvenes in January, that will mark the start of the 2022 mid-term election count down. People (and voters are people) have short memories, so the closer we inch toward the throws of the political advertising and mudslinging onslaught that is certain to ensue, politicians will have to be very careful as to which legislation they support. Could the bill be amended by the Senate and then sent back to the house? Absolutely, but the bill would probably become even more watered down than its current status and would, therefore, most likely lose support from the progressive contingent in the House. Like the old saying “Time kills deals”, I think that is also true of political deals.
Market outcome: Who knows exactly, but probably a marginal positive, as markets really enjoy clarity. The murkier the near term looks, markets tend to either stay flat or trend down. With the threat of new legislation being put on ice, there is indeed more clarity.
Always remember this about our politicians. Many of them are very wealthy, and they might look at certain legislation around taxation as a direct shot at their own finances. At the end of the day, perhaps some vote with their own self-interest in mind.
You can listen to our podcast about Investing and Politics here: “Don’t Let Politics into Your Investment Portfolio”
We’re seeing daily news about the new variant and its effects. There is now a mask mandate for indoor public places in the following states: CA, HI, IL, NV, NM, NY, OR, and WA. Will more follow? Probably so.
Does this mean we’re reverting back to the throws of the original breakout of Covid-19? Again, who knows. My opinion is that certain events/venues will become more restricted, and no that will not be fun. So, what does this mean for the market? Will it have the same reaction as what happened back in Feb/Mar ’20? Probably not. The phrases “new old news is not new news” or “lightning never strikes twice in the same place” are probably worth remembering this time around. The first go round was such a shock to all of us because we had no idea what to do and the protocols for handling it were changing daily. Sheer panic!
Now society knows what to do and how to handle things if we had to revert to lockdowns. I have no way of handicapping the probability of the outcome and neither does anyone else for that matter. What I do know is that we’ll be getting headlines either daily or multiple times a day for the foreseeable future as to the new restrictions.
Market Effect: Volatility in both directions until we get more clarity on how we’re going to handle this.
I wish all of our readers a wonderful holiday season, and a Happy New Year.
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This discussion is not intended to be a forecast of future events and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security or is a substitute for personalized investment advice from your individual advisor. HCM does not provide tax or legal advice. Consult your tax or legal advisor for any related questions.
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