Political analyst Greg Valliere says this “a great time to do what I do.” In fact, the expert believes today’s political events are unlike anything he’s seen before.
“It’s like 13 unassisted triple plays in baseball right now,” said Valliere on Monday during the Financial Advisor Summit 2015 in Washington, which was hosted by the Financial Services Institute and drew about 150 advisors and 150 other guests.
Specifically, the chief global strategist at Horizon Investments says it is odd to have institutional investors “begging” for the Federal Reserve to raise interest rates, Minority House Leader Nancy Pelosi as “the most powerful player of them all” in Congress, and the leadership of both political parties “scared to death of the presidential front-runners.”
Looking out to the 2016 elections, Valliere says it is likely to be a contest between Hillary Clinton and Marco Rubio, or possibly Ted Cruz or even Ben Carson.
“It’s safe to say that the vast majority of professional investors are tired of ‘will they or won’t they’,” he said, referring to a 0.25% hike in the federal funds rate. “I agree with economist Larry Meyer. Just do it already!”
The Fed may move to raise rates on Dec. 16 and then again early next year, he says. “The markets are tired of the uncertainty and mixed messages. They want clarity.”
If the payroll figures for nonfarm jobs are good this month and next, rates could rise, spelling the end to the uncertainty and “annoyance” of the current situation, he explains.
While Republican presidential candidate Donald Trump complains about “the stupid people” running Washington, Valliere says it was not a lack of intellect but a lack of votes that meant the Republicans couldn’t stop either President Barack Obama’s health care reforms or his nuclear deal with Iran.
The good news for Congress and the American public, he says, is that Paul Ryan was picked to lead the Republicans in the House, “and we have a budget deal.” The deal includes the lifting of some spending caps, which come conservatives do not like.
“But I’m on the 50-yard line and think the budget deal eliminates uncertainty for some time,” Valliere explained. “The most powerful stock to play is tied to the Defense Department’s extra spending at Pentagon, and it should be for several years to come.”
He’s also bullish on what spending on health care research could mean for the industry.
As for the fiscal state of the country, the Washington expert says tax receipts have “far exceeded all expectations. It really shouldn’t be a surprise, since we have low unemployment and high profits.”
With the alternative minimum tax resulting in higher tax revenues for the government, the fiscal situation should be in good shape for the next three to four years, he adds. “It’s all of us [paying our taxes] and your clients!”
The budget deal means the outlook for the financial markets from Washington “is much better, and that means the federal government can go on operating versus going through a budget crisis,” he states
With Ryan’s move into the role of House speaker, Valliere does not expect immigration reform to move ahead. “He will not allow that to happen in the House,” the analyst said.
As for those pushing for reform, “I’ve never seen a coalition in favor of an issue like this,” he explained. Everyone from the Wall Street Journal to the AFL-CIO, U.S. Chamber of Commerce, Karl Rove and religious groups are pushing for it. But it is not going to happen.”
(A pro-reform stance hurt former House Majority Leader Eric Cantor, who lost his election in Virginia last year, he points out.)
As for tax reform, “Everyone has a plan,” Valliere said, but there is no consensus on the details.” Will Congress get rid of the mortgage deductions or make similar changes? “I don’t see anything happening for a few years.”
Corporate taxes, at 35%, need reform, but again there is no consensus on how this could happen. “You will hear more about this from Ryan,” who is interested in looking at the issue of profit repatriation and has suggested that this income be taxed at 6%-8%, he said.
Such a plan “could really help drug, technology and other companies … It could boost mergers and acquisitions, and more tax revenue could then go the infrastructure. Ryan … is passionate about … improving our highway system, bridges and cybersecurity,” he said.
Valliere says one of his friends told him recently, “You know the U.S. tax scene is screwed up when Canada is a tax haven.”
Another positive for the markets, he points out, is that the federal deficit is now below 2.5% of GDP and below the 50-year average of 3%: “Yes, [the debt is] $18 trillion [cumulatively] and is going up. But the annual deficit is nothing to unnerve the Treasury bond market.”
The political expert does not expect Congress to raise taxes or change the tax treatment of carried interest over the next several years.
As for entitlement reform, Ryan may push for this to happen with respect to Social Security cost-of-living adjustments, for instance, but not before the presidential elections — if his fellow Republicans have their way. “Wining in Florida takes precedence over reform,” Valliere explained.
On the Democratic side of Congress, both Bernie Sanders and Elizabeth Warren are eager to increase Social Security benefits, he says.
“Complicating all of this is the presidential race,” explained Valliere, “and I’ve never seen anything like it: Both parties are terrified by their possible nominees!”
The Democrats seem to have a “clear favorite” nominee in Hillary Clinton. “I don’t see a 74-year-old Socialist” as the nominee he said, referring to Sen. Bernie Sanders of Vermont.
But many Democrats have “big concerns” about Clinton, namely that more disclosures about her different email accounts or issues with the Clinton Foundation will come to light, according to the analyst.
“Clinton and the media are not friendly,” he said. “Plus, as some Democratic voters say in the polls, she has higher negatives than she has positives, which is not a good sign … Furthermore, most Americans say they don’t trust her.”
What’s the only way for her to win? “Run against someone who is even worse!” Valliere stated, noting that it seems Democrats “are resigned to having Hillary as the nominee.”
The Republican Party is in a “venting phase,” Valliere says, since many voters are angry. Thus, there are three outside candidates – Donald Trump, Ben Carson and Carly Fiorina.
The second phase of the nomination process starts Feb. 1 in Iowa. “That’s when the focus is on a person’s temperament, the people who could have their finger over the nuclear button,” he said. “Should that be Trump? Carson? Maybe not.”
When looking at which Republican candidate can actually win the White House, Valliere names, from most to least likely: Chris Christie (“an outside chance” ), John Kasich (“Democrats like him, which is a curse not a blessing), Jeb Bush (who needs to “get off the decaf and get some espresso”), Ted Cruz (who knows how to “throw red meat at the Republican base”) and Marco Rubio (“a brilliant speaker and charismatic politician who connects with middle-class voters”).
As Trump fades in the polls, Cruz benefits, Valliere says. But if the election were run like an NFL draft pick for the best player, Valliere would select Rubio.
“He talks Reaganesque, about the future, with an inspirational story to tell… Yes, he is 44 and looks younger. He is the candidate to watch,” the political expert explained.
Key votes come in the swing states and from young voters, women and Hispanics, among other groups. “Republicans did not do themselves any favor in Ohio with women and with social issues,” the political expert explained. “How can they pivot back to the center on social issues?”
Some Hispanics may like Rubio, but the rhetoric against immigrants expressed by Trump has been inflammatory. Also, “Rubio liked immigration reform, and then he ran from it when he saw [some] polls,” Valliere said, lessening his appeal to Hispanics overall.
“Look at the groups that doomed Romney,” he said, adding that some of these groups “don’t like Hillary.”
As for Congress, the impact of redistricting and other shifts means the House is “going to stay deeply conservative for several years, according to Valliere.
The analyst joked, “If the election pitted Clinton vs. Bush, people with 20-year old cars wouldn’t need to change their bumper stickers.” But, on a serious note, he adds, that matchup would likely mean that many people will not vote.
Whereas Rubio is “the most electable Republican because he looks to the future, Hillary and Bush “look to the past,” said Valliere.
“Hillary is more worried about Rubio than anyone else,” he said. “There will be a big, big contrast between them while campaigning and in the debates, when the age difference will be clearly visual on TV.”
“She could easily beat Jeb, and if she runs against Trump, she would go to mass daily [to thank God],” Valliere said. “Carson is a wild card; but given his passive style, Hillary could look good against him, too.”
He thinks Rubio should run with Kasich, so Florida and Ohio – the states the two politicians represent – could go to the Republicans.
For Clinton’s part, rather than picking someone with a minority background, like Housing Secretary Julian Castro, she should go with “a boring middle-aged white man,” he says, “like Mark Warner or Tim Kaine of Virginia to get that state’s electoral votes.”
Valliere also says there’s “a cottage industry” analyzing what could drive Trump to drop out of the race. “But I think he won’t take much for him to drop out. Will he lose in Iowa or decide to get out before?”
What keeps the Washington observer up at night? Unfunded liabilities in places like Detroit, Puerto Rico, Chicago and Illinois as a whole, he says: Chicago Mayor “Rahm Emanuel has to raise taxes, slash benefits or both. It’s quite frightening.” Still, some states like Iowa have confronted budget issues head on, with creative measures.
Nonetheless, these unfunded liabilities are “an increasing irritant to the financial markets,” states Valliere. “Christie said we have to start means testing, and that hurts him at polls. But we have got to talk like adults … about what we cannot afford.”
In addition, there are federal regulations “flooding in,” since President Obama can’t get much done in Congress. “The coal states are upset about new rules, as is your industry about the proposed [Department of Labor] fiduciary standard,” said Valliere.
All Republicans and at least half of Democrats don’t like it, he adds, asking, “Why can’t they sway the DOL? “
As for what’s happening overseas, there is a risk that China could weaken economically and that could hurt other economics worldwide, he points out. “But my sense is no… China is going to do whatever it takes to stimulate the economy.”
For instance, its government recently moved to allow families to have two children rather than one. “They can throw billions and billions at the economy and ease monetary policy,” Valliere explained. “You have to be concerned about the Middle East. I never thought I would see [Russian Prime Minister Vladimir] Putin as the most powerful player in the region.”
While there are many geopolitical matters that concern him, the analyst is upbeat overall as he looks at the Washington scene: “This city looks tranquil …and we’ve got few things working in our favor. Ryan will be an outstanding speaker of the house, and the deficit should continue to look good. Rates will rise, but not dramatically. Maybe unemployment goes lower, to 4.9%, and the economy grows around 2.5%. Overall, I’m fairly optimistic and to me, I see things as a net positive.”