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Confounding and confusing events 8/1/22

Mr. Putin has gotten some uncomfortable surprises from his purported allies along his southern border. It appears Kazakhstan has decided not to support his war against the Ukraine, and maybe more importantly, to support the Ukraine and potentially NATO. This is likely to be troubling to him, but a number of other southern border countries, although not having expressed as much displeasure, are getting very nervous about what he might do relative to them in the future. More surprises for and from Mr. Putin.

Republicans are facing an unusual situation as their on-line fundraising has slowed down dramatically from small dollar donors, with about 70% of Republican fundraising programs seeing a decline, and in some cases, by as much as 12%. The flip side of this, of course, is that Democratic contributions from on-line donations increased by 21% over the same period, with the Democrats having taken $100 million lead, if you will, since the last quarter of 2021. Mr. Trump is having an outsized effect on this, and many Republicans feel and fear that he is one of the chief causes for the decline. He is drawing away funds by his own fundraising, there is some negative impact from the January 6th hearings, and a general move away from Trump with many feeling that he has exhausted the Republican donor base, both financially and emotionally. This caused Senator Rick Scott, the National Republican Senatorial Chairman, to say, “We get the money, we win”, with the flip side of that being - we don’t get the money, we don’t win.

As Democrats look to their strategies this fall, one that I would suggest they give careful thought to is working diligently to gain at least two seats in the Senate. What that would do is allow them to basically limit the impact and neutralize both Mr. Manchin and Senator Sinema. Even with his latest agreement to support a $450 billion package, he has proved to be unreliable which is very problematic when someone keeps moving the goal post. That, in my mind, is not the sign of an honest man. We’ll see if he completes this deal.

The question of whether or not we are in a recession keeps popping up, and it appears that there are many factors which could be read as indicating a recession including two quarters in a row where there was a decline in GDP, but the flip side of that is that you have 400,000 jobs being added last month, this is an economy that continues to percolate in terms of wages, consumer spending, etc. This is going to be one of those unusual circumstances, and unless there begins to be a significant series of layoffs, or rapid declines in profitability of major corporations, it will be hard to see a recession taking hold. I believe that we will likely see is a period of flat growth, but not a decline in growth.

The Commerce Department did report a contraction of 0.9 percent for the quarter ending on June 30th, following a 1.6 percent decline for the period ending March 31st. This all goes into this confusing picture that is being painted and we are just going to have to see which predictions come to fruition.

Canada is looking favorably on our proposal to expand electric vehicle tax credits to include Canadian assembled vehicles. This makes great sense because of the heavy cross-border movement of car parts as they are processed, completed and assembled into vehicles which has been in place for dozens of years. It is good to see the governments wake-up to the economic reality.

I am sure you are aware that the Senate passed and sent back to the House for further action the Industrial Policy Bill, providing $280 billion to counter China’s moves. This is very important, both from a national security standpoint, as well as an economic standpoint. It may well be that at least a lower portion of our region will benefit from this significantly, particularly as it relates to cheaper production. It is also good to see that the Senate can actually cobble together enough bi-partisan votes to pass something of significance.

It is being reported that Canada’s wholesale trade most likely jumped .5% last month, which is also beneficial since the bulk of that trade moves to the US, which means that there is demand for those products in the US which reflects positively on our economy.

I am sure you are aware, the fed raised interest rates .75% as it continues to follow a path of tamping down inflation. This is always a tightrope for the Fed as increasing rates too high and too fast can lead to a recession, and the failure to increase rates or to act too slowly can lead to a recession. Not a particularly comfortable position to be in.

The attack on the Republican gubernatorial candidate has raised the issue of bail reform with calls from primarily Republicans to bring back some requirements for bail. This is a complex topic when one considers the issues about his assailant who is apparently someone without a criminal history, and who attacked with a rather crude device. The question of this man’s mental health is also obviously there. In my view, bail reform does need to be reviewed, but the answers are difficult and hard to administer in the real world, as they are very rarely clear nor are there clean solutions and resolutions.

Commentators are speculating that the reason the stock market jumped after the most recent increase in the Fed rate is because the markets are anticipating a lowering of rates in 2023. This, of course, assumes that inflation is brought under control, which, to some extent, appears to be happening, not necessarily because of the increase in rates, but just as the economy settles down, consumer demand decreases, at least somewhat, and supply chains get better. All of this creates an interesting environment to observe and to be very careful when investing in.

Bill Owens is a former member of Congress representing the New York 21st, a partner in Stafford, Owens, Piller, Murnane, Kelleher and Trombley in Plattsburgh, NY and a Strategic Advisor at Dentons to Washington, DC.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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