AGF’s Greg Valliere on How Politics Could Impact the Economy

Will the upcoming election have a serious impact on the future of the markets? In July, Hightower hosted the 2020 Virtual Investment Forum, a first three-day, full service virtual conference designed to provide Hightower advisors with valuable insight on the latest investment trends from the industry’s top speakers. Among those speakers was Greg Valliere, Chief U.S. Policy Strategist at AGF, who spoke at length with Hightower CEO Bob Oros on the potential implications of a Trump or Biden win.

Here are some key points from the panel:

The economic impact of COVID-19 is likely to be long-term.

Valliere made the point that – from business to baseball – the entire world has been completely altered by the events of the past few months, and those changes are going to have a major effect on our economic system for a long time to come.

“These huge changes have affected Washington and the markets; they will not be temporary,” he said. “Talking to people here in Washington, most feel that this crisis is about triage, and we have to save the patient. The amount of money we’ve thrown at this is staggering. It’s totally unprecedented. We’ve spent over three trillion dollars already and I think that the next bill will be probably a trillion and a half. You have to ask the question, what are the repercussions of the amount of monetary stimulus we had to provide?”

By the middle of this decade, Valliere argues that we are going to have to worry about debt servicing costs, and we as a country may need to tighten our belts as a result. On the chopping block may be the defense budget.

“Maybe spending gets reduced, maybe the defense budget, which has gone up dramatically, will be forced to level off, and maybe social security gets trimmed,” he said. “We are also going to have to talk about tax increases, although I’m not sure they’re imminent even if Biden wins. Still, at some point there will be a need for higher taxes.”

Deflation may be a bigger threat than inflation in the next few years.

While many people have expressed concern for how the Fed has handled the current crisis, Valliere thinks they are worried about the wrong problem.

“Everyone asks me whether what the Fed is doing, or what we’re doing in Congress, is going to lead to inflation. But I don’t think inflation is imminent,” said Valliere. “While it may be an issue down the road, I’m still in the camp that worries about deflation, at least for another year or so, before we get out of this mess.”

When it comes to economic impact, the election financial professionals should be watching is the Senate.

Valliere says that while the media seems to be playing down market concerns about a Biden win, he believes Wall Street would not take well to a so-called “Blue Wave” – in which the Democrats take the House, Senate and Oval Office.

“I have a dear friend on Wall Street who has told me year after year that divided government is good, because it means they do less harm,” he said. “I think divided government would be preferred by the markets, but there’s certainly a decent chance of a ‘Blue Wave,’ because I see at least four Republican seats that look vulnerable. I only see one seat that the Democrats have that looks vulnerable. It could wind up a tie, that the Democrats could break, but if Biden wins convincingly, there’ll be two or three other seats to fall, and I think the markets may be concerned to see the Democrats controlling everything.”

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