Podcast: When will Congress get its House in order?

Brian Levitt:

Welcome to the Greater Possibilities Podcast from Invesco, where we put concerns into context and opportunities into focus. I'm Brian Levitt.

Jodi Phillips:

And I'm Jodi Phillips. And on the show today is Jen Flitton. Jen is the head of US Government Affairs at Invesco.

Brian Levitt:

So Jodi, we're talking politics again.

Jodi Phillips:

Well, it's kind of hard not to at the moment. We won't discuss it at cocktail parties or family dinners, but we can't help ourselves when it comes to this podcast.

Brian Levitt:

Yeah. And I don't think we should. I've been out seeing clients, seeing investors. It is top of mind. It's among the one or two top questions that I'm receiving right now.

Jodi Phillips:

Well, sure. I mean, there hasn't been a Speaker of the House since when? Early October.

Brian Levitt:

I don't mean to laugh.

Jodi Phillips:

That's something to talk about.

Brian Levitt:

Yeah. Is that a problem? I mean, it's not even clear there's a path to getting one, although there's some options I think that are starting to emerge.

Jodi Phillips:

Yeah. Yep, definitely. And so Jen will give us a scoop on all of that, but it's certainly unprecedented. I mean, as much as you like to make historical comparisons, Brian, when big events happen, ousting a Speaker like this hasn't happened before. So an unprecedented territory here. And it happened just a few days after we were able to avert a government shutdown.

Brian Levitt:

Yeah. So you and I were happy about that. We had talked about that on the last podcast, and I've got a friend at the federal prosecutor's office, so we weren't sure if he was essential or non-essential, but he's still getting paid, so he's happy right now.

Jodi Phillips:

Well good. Well good. And importantly, the animals at the National Zoo are being fed. I know you,

Brian Levitt:

Yeah. Good.

Jodi Phillips:

Always like to ask that question, but.

Brian Levitt:

We were happy about that.

Jodi Phillips:

But look, the next shutdown deadline isn't that far away, November 17th. So the question is how is all of this uncertainty going to impact what happens between now and then? Can we avoid the next one without a speaker?

Brian Levitt:

Right. And we had said that even if you have them, they don't last that long. So I don't know how you do this without good leadership in the House of Representatives. So I think it's a good question.

Jodi Phillips:

Yeah, I mean, I think you've said something about seven or eight days on average is usually about how long shutdowns have lasted in the past, but what would that look like if this Speaker thing isn't settled?

Brian Levitt:

Right. And right now, and I'm not sure it's front and center in the markets, I mean, it seems like Americans have gotten used to these things working out, but there's no shortage of challenges for the US government to contend with right now.

Jodi Phillips:

Nope. There's funding for Ukraine for one, and of course significant concerns with the Israel-Hamas war.

Brian Levitt:

Right. And all happening on the eve of an election year.

Jodi Phillips:

It's always the eve of an election year, right? I mean, that's what it feels like. There's always one upon us. So,

Brian Levitt:

Do we really have to do this again?

Jodi Phillips:

The calendar says so and the Constitution. So yeah.

Brian Levitt:

I guess we'll start dusting off those presidential elections don't matter as much for markets as you think they do content. At least that tends to be popular with our friends.

Jodi Phillips:

Yeah, maybe you can talk about it at cocktail parties too. It's always a crowd pleaser. So in any case, look, let's bring Jen on to discuss each of these issues and more. So welcome, Jen.

Jen Flitton:

Hi. Thanks for having me.

Jodi Phillips:

Sure. Well, thanks for joining us, especially when there's so much uncertainty going on to help us figure this out as much as possible. As we're recording this, still a lot of questions about the speaker. Jim Jordan failed to get the gavel after two rounds of voting, and I'm starting to see headlines that he may not go for a third vote and instead could support a plan to give additional powers to Representative Patrick McHenry who's now serving as temporary speaker. So I definitely want to get your views on all of that. But first I'm hoping you can kind of set the stage and explain to us what can and can't the House do without a Speaker right now?

Jen Flitton:

Well, first I'll say, so we're a bit whipsawed. Right. So that was the news this morning and now it's two hours later post conference. And the members erupted over that idea.

Jodi Phillips:

Oh, goodness.

Jen Flitton:

And so there were a lot of tweets and a lot of talk with press as they left the conference meeting. And they right now are not at all interested in empowering the current Speaker Pro Temp, Mr. McHenry.

Brian Levitt:

Why?

Jen Flitton:

So there is a lot of frustration over the idea that they would require Democrat votes,

Brian Levitt:

Okay.

Jen Flitton:

For this. And there's not a majority of the majority currently that's backing this type of empowerment that would essentially take us over the next two months into January. So past some of the biggest legislating, right, over the next two months. And so you saw the hardliners, the conservatives really rally against that. So the expectation is that potentially we will see a third round,

Jodi Phillips:

Okay.

Jen Flitton:

With Jordan as of 2:30 right now.

Brian Levitt:

2:30 on Thursday on the East Coast.

Jen Flitton:

Right.

Jodi Phillips:

Okay. Well, Brian, that's a note to self. I should always check X right before we start recording a podcast.

Brian Levitt:

I mean, we have other jobs to do also, but you're not refreshing the internet every couple minutes for your latest news.

Jodi Phillips:

No, that was my mistake.

Brian Levitt:

Hey Jen, I have a question. I've been getting this from people. When we used to do these things in the past, was it always only one party voting for the Speaker or did you used to see crossover votes from other parties? For example, in the ’80s we used to hear about how these guys and gals would get together and hang out and drink. Was Tip O'Neill getting votes from the other party?

Jen Flitton:

No, this has always been a partisan exercise. I mean, there are occasionally you have independents who aren't members of either Republican or Democratic Party, but then they caucus or conference with those parties. And you see that happen in the Senate. Right. We have three independent senators right now. They all caucus or have some sort of negotiating agreement with the Democrats. But in the House, because majority rule is so strong, the minority, it's easy to stay together because you're in the minority, right, you're the opposition party. What we're seeing over the past two Congresses, the last one in which Pelosi was the Speaker, she had a similar margin, right, a similar margin of votes, four to five votes,

Brian Levitt:

Right.

Jen Flitton:

But she had changed the rules. So there would not be a motion to vacate unless there were a certain number of members who put it forward. They changed the rules back to only one person being able to issue this motion to vacate.

Brian Levitt:

Regrettably. Well, that was,

Jen Flitton:

Regrettably.

Brian Levitt:

That was because Kevin McCarthy had to go 15 rounds, right? And this all stems,

Jen Flitton:

That's right.

Brian Levitt:

Back to the expectation you would have a wave Republican election perhaps in the midterms that just didn't play out.

Jen Flitton:

That's right. It did not materialize. And so what they were left with was a four to five vote, depending on a good day, right, margin. And so because McCarthy had become somewhat of a polarizing figure within the House Republican membership with such a small margin, it took him so long and then he had to start making deals to get to the speakership.

Jodi Phillips:

So Jen, on the second ballot, Jordan got even one fewer vote than he did on the first ballot. So going into this third vote, and maybe votes 14 through 15, who knows? I mean, what would you think might we be looking at next?

Jen Flitton:

You're right. So if he does not gain in numbers, right, it's going to continue to sort of unravel within the conference and the temperature is incredibly heated. I mean, these are very tense moments. Typically, conference meetings stay very private. They're not, they're literally playing out on X right now. And so you see these members just throwing out the family meeting and putting all of their dirty laundry on the floor and in front of the press and all over the Twittersphere. So it needs some time to calm down. That was the whole intention of empowering the Speaker Pro Temp for two months is to allow some calm to come over the conference.

There may be a way in which the Speaker Pro Temp can bring legislation to the floor with without further authority, assuming that they make the argument that the authority is currently within statute. And that is a debate that's happening within Washington right now. And what we could see is the Biden administration bringing the supplemental draft to the Senate next week, the Senate passing it, and that essentially triggering the House to do something. Right. Now they have something, a forcing mechanism, and that we could see potentially next week.

Brian Levitt:

Speaker Pro Temp, I don't remember learning about this in high school. Is this a post 9-11 type of thing? Is this to make sure, what was the show with Kiefer Sutherland the last survivor? Is it that type of thing?

Jen Flitton:

Well, yeah, it's sort of, right, because that would be in an emergency, right, the one cabinet member who doesn't come to the State of the Union, that was sort of that reference, but this was also devised after 9-11 in case of an emergency where potentially there's devastation within the chamber. And so this would allow for, the Speaker has to provide a whole list of members who could then fulfill that position. And it's written in such a way that he would have the necessary and appropriate, he or she would have the necessary or appropriate and appropriate authorities deemed by the speaker. Right. But his main goal is to allow for the election of a new Speaker.

Brian Levitt:

Why should Americans care? What should we worry about if this persists?

Jen Flitton:

Well, right now we have a lot of volatility, right, around the world in the Middle East. What the Biden administration is proposing is to bring a supplemental that funds Ukraine, Israel, Taiwan, potentially and includes some border money. And so these are all threats within the world and at our own border. So this is a real exercise and I think that there will be a lot of pressure. Right now, there isn't really that forcing mechanism. There isn't legislation that has to get done this week. Right. And the House was already scheduled to be out in recess for the last two weeks. So while we're approaching the supplemental draft coming to the House floor and we have the appropriations process, we're running into that November 17th deadline where the continuing resolution, the stop gap funding runs out. It's really over the next week, two weeks, three weeks, where there's going to be a need to get legislation passed. We're not quite there yet. And we all know Congress doesn't work without forcing mechanisms, so we're going to have to see what happens.

Jodi Phillips:

So Brian, a lot of issues definitely on the table. I don't know if we want to break this down kind of one by one, maybe looking at the shutdown first. Definitely hopeful for another solution to this, but Jen have to ask, what does a worst case scenario look like in terms of if we can't get things together before November 17th and the shutdown happens?

Jen Flitton:

Right. This is pretty embarrassing for House Republicans right now, but embarrassment will turn to humiliation if by next week the House and Senate pass a supplemental funding, they're able to bring forward a bipartisan supplemental bill that will aid in the crisis that we're seeing play out in real time in the Middle East, and then the House can't bring it to the floor. That would be an emergency. Right. And so that's why it's a big question whether that may be the moment that the conference decides, okay, we just need to figure out what we're going to do till the end of the year. And maybe that is a way to get more empowerment into the Speaker Pro Temp.

Brian Levitt:

Are there are all options open on this? I mean, you say that typically you don't see the two sides come together and think of an option. I mean, are there Democrats willing to put their votes behind a Republican candidate in exchange for some of the concessions that they want to? I mean, clearly they weren't with Kevin McCarthy. Do you think they're regretting that or is it possible that something may happen in the future?

Jen Flitton:

Well, there's been a lot of chatter about that in Washington, whether they regret. I mean, Jim Jordan could still become Speaker by next year. Right. And so the idea that some of the Republican rhetoric that came out after McCarthy was removed and deposed was that Democrats joined with Matt Gaetz and friends to kick out Kevin McCarthy. Right. And at the time I thought that was – okay, wow, that's quite a reach. But apparently some of that's resonating.

I don't think there's a real understanding over the process and procedure of the House in most American kitchen tables, that's not what they're discussing. But when you try to present yourself as the pragmatic party, the party who's serious about getting things done and making government function, and then you vote to remove the speaker, apparently there is in some circles that's resonating in the sort of independent, those who can kind of go both sides depending on the election. And so they're starting to feel some of that in certain districts. And so I think they want to be part of the solution. But of course that is then getting the hardliners, the Gaetz and extended into the rest of the Freedom Caucus, really frustrated over the idea of an electing a Speaker with Democratic votes.

Brian Levitt:

As always, where you stand depends on where you sit.

Jen Flitton:

Right.

Brian Levitt:

Right.

Jen Flitton:

Right.

Brian Levitt:

You hear what you want to hear. I've got to imagine that Benjamin Netanyahu and Volodymyr Zelenskyy are watching this pretty closely.

Jen Flitton:

I would imagine that the need to replenish the Iron Dome and the need for Ukraine to have further support, which quite frankly right now, of the $100 billion that the administration is drafting, the talk is that $60 billion of that is for Ukraine. Now, that's a lot over the $24 billion that the White House had originally asked for earlier this fall. So I would imagine that is not going to be well received by House Republicans, many House Republicans. And so that number is going to be really difficult to get to. The House Republicans if they want to play here, they have got to come together if they want to negotiate around this package, because it's not just money. They'll have to be accountability. They'll have to be policy and direction for exactly where that money goes. And the House Republicans are going to want to be part of that conversation, but they can't. They have no leverage if they don't get a Speaker or empower a Speaker Pro Temp.

Jodi Phillips:

So speaking a little more specifically about the crisis in Israel and Gaza, I mean, does all this dysfunction and distraction in the US have potential implications about this expanding into a broader regional conflict while we're busy infighting? What's the broader perspective globally?

Jen Flitton:

Well, that's the ultimate fear. And so you've seen the administration today, or maybe it was last night, provided a briefing to members, the leadership of the House and Senate, bipartisan to really bring them up to speed as to what they're seeing. And of course, the fear is that this could spread, that Hezbollah could become involved, that Lebanon could become involved, and what does that mean for the spread of this in the region? And so that is definitely a concern that is shared by both sides. That's a bipartisan concern.

Jodi Phillips:

Absolutely.

Jen Flitton:

I mean, that's the consensus of Washington right now. And then you saw the State Department just a few hours ago issue a concern to American travelers around the world, that they need to be vigilant because of the protests and potential terrorism.

Brian Levitt:

I guess I was very naive six months ago, walking around the Holy Land without much of a care in the world. It's amazing how quickly things change. Did you get a sense based on President Biden's trip to Israel, did you get a sense of everybody's talking about the morning after, the morning after, or how does this end? Do you have a sense of whether we're stepping into a prolonged conflict similar to perhaps what we saw after 9-11 with what the US was seeking to accomplish in Afghanistan? Or does this seem to be a more limited mission with a potential reasonable outcome?

Jen Flitton:

Well, I think the key question right now as things stand today is the Israeli entrance into Gaza and what they will need to do to extract Hamas from Gaza, what is left in Gaza after that?

Brian Levitt:

Right.

Jen Flitton:

Right. And so as much as the US and Biden's rhetoric has been, we don't want Israel to have to occupy Gaza. Israel doesn't want to have to occupy Gaza. But there's a famous saying, right, in defense and going into and occupying, “if you break it, you bought it,” right, you have the responsibility of those people. There is discussion and you saw that as President Biden left Israel, he apparently immediately had phone calls with president of Egypt and the president of the Palestinian Authority because they're trying to get a handle on what happens after they remove Hamas, which was essentially the governing force there in Gaza after 2007 when they rather viciously took over the strip.

Jodi Phillips:

So Brian, I know on our list of questions that we wanted to ask Jen, we definitely wanted to ask her about 2024 election. Is there anything else before we pivot, anything else you wanted to ask about the shutdown or should we just jump straight into the election picture?

Brian Levitt:

I guess before we get to that, I mean, I think investors want to know what they should be concerned about most or what they should fear most. And one of the things that I've been hearing lately is inflation is still a challenge. We can debate how much of a challenge in the US. We've seen interest rates go up a lot, and obviously there's rates kind of settle based on where supply and demand are. And the concern that I'm hearing is more supply, the more need for money, not only at the US border, but also Israel, Ukraine, and whether there, I don't know necessarily if this is a question for you, Jen, but whether there's demand for all that supply coming to market and is now the right time for more spending. Not that the United States largely has a choice in this instance, but is there really the reasonable ability to sop up this supply that's going to come to market?

Jen Flitton:

Yeah, I think the appetite for additional spending is incredibly low. And you saw out of this debt ceiling deal, the parameters that were set were to bring that fiscal spending down considerably. And I think no matter what comes out of this, we will not be growing spending here in the government. And there will be a restraint. How they do it on discretionary spending specifically, right, which we know isn't the main growth of spending. It's really entitlements, it's Social Security and Medicare.

Brian Levitt:

Sure.

Jen Flitton:

But within that discretionary spending and the non-military discretionary spending, they will start to contract that, whether it's at the House level of really restraining it, or it's the Senate level, which is a compromised restraint, it will be restrained.

Brian Levitt:

I think a lot of investors will be happy to hear that.

Jen Flitton:

Yeah.

Brian Levitt:

So to Jodi's point, do you think that what is going on in the House of Representatives right now is being closely followed by the American public, and do you believe that by the time we get to the conventions next summer or the debates in the early fall that anyone's even going to remember this?

Jen Flitton:

Right. Exactly. And I was with a few members this week who were saying the same thing, right? I mean, they're hearing from their base, right, the base voters who of course are political junkies or they pay attention and they're sent little messages, email or text otherwise. And so they're engaging in calling up their office, their congressional office, and having their own opinion about Jim Jordan or a Scalise or what have you. But the vast majority of people don't know who the Speaker of the House is, don't care who the Speaker of the House is. And quite frankly, once we get into the general election season, the presidential will be the main stage and everything will just be sideshows. It's going to be two main characters. And we can in a point in time right now, it looks like it's going to be President Biden and former President Trump, a sort of redo of 2022, two very well-known figures who also have their own polarizing forces. And so that will be the vast majority of the focus come 2024.

Brian Levitt:

Yeah, this will seem like a distant memory.

Jen Flitton:

Yeah.

Jodi Phillips:

So do you have any, I don't know if predictions is maybe too strong of a word or just thoughts in terms of what the most likely outcome might be in ’24?

Jen Flitton:

Well, I think the consensus right now, if you're looking at the polling, the aggregated polling is that Donald Trump is quite a force and he is only growing in that and short of being sent to prison, which by the way, you can run for president and you can be president if you are in prison, short of experiencing some sort of issue along those lines, it does look very likely that he will be the Republican nominee. And we have the caucuses meeting here in Iowa in January, and then that will follow for the first primary in the country in New Hampshire in February, and then it'll go to South Carolina and all of a sudden you're at Super Tuesday. The momentum if he takes Iowa and New Hampshire and then South Carolina is just going to be unstoppable. So really that's why you see sort of the next rung of characters, DeSantis, Haley, Tim Scott, they're focusing all of what they have on Iowa and New Hampshire.

Brian Levitt:

What about 2028? No, I'm just kidding.

Jodi Phillips:

So Brian, is this the part where you pull out your presentation about how 2024 isn't going to matter much to markets and make us all feel a little bit better about that at least?

Brian Levitt:

I mean, at least what I've been able to tell people, people get so worried around the elections on what it's going to mean for markets. If you look at the market performance under Trump from the day he got elected in 2016, so I think that was November 8th, 2016, for the first 720 or 740 days in office, which is what Biden has now done. And you look at Biden's performance, the S&P 500 from November 3rd, they're pretty close. Trump's got a slight advantage, but they're pretty close. Nowhere near what the amount of concern that we heard from investors. So Jodi, Jen, I will keep going back to those points. I know these things mean a lot with regards to policy and direction of the United States and what type of country we're going to be and how we're going to form a more perfect union. But ultimately, markets seem to be focused far more on what the Federal Reserve is going to do.

Jodi Phillips:

We promise not to ask you any Federal Reserve questions Jen. We'll save that and put Brian on the hot seat there.

Brian Levitt:

Jen, is there any parting shots, anything we missed, anything that you can tell us to maybe calm the concerns of people that are watching this too closely?

Jen Flitton:

Well, I think we will have a resolution here. It's going to be, it's already dragging out, but it's going to drag out further. And if you watch too much news, and right now people are because of all the volatility in the world, so they're seeing all of this playing out in real time. But I do think that by the end of this year, there will be some sort of resolution to the government funding, to the continuation of the NDAA, the reauthorization of the Defense Act, which is how we fund our military and some sort of resolution on supplemental funding for the Middle East and the war in Ukraine. And so I think by the end of this year, we will find ourselves resolved around Christmas.

Brian Levitt:

All right, my blood pressure just went down quite a bit.

Jen Flitton:

Merry Christmas.

Jodi Phillips:

Merry Christmas.

Brian Levitt:

Happy Holidays.

Jodi Phillips:

And Happy New Year. Thank you so much, Jen. We appreciate you joining us.

Jen Flitton:

Thanks so much.

Jodi Phillips:

So Brian, as we track these issues through the next couple months, where can people find your market views?

Brian Levitt:

Yeah, it's not going to be hard for us to come up with topics, right, Jodi?

Jodi Phillips:

Not at all.

Brian Levitt:

Visit invesco.com/brianlevitt to read my latest commentaries. And of course, you can follow me on LinkedIn. And on X. Do we have to say formerly known as Twitter?

Jodi Phillips:

Why not? Formerly known as Twitter.

Brian Levitt:

At Brian Levitt, the real Brian Levitt.

Important information

You've been listening to Invesco's Greater Possibilities Podcast.

The opinions expressed are those of the speakers, are based on current market conditions as of October 16, 2023, and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals. Invesco is not affiliated with any of the companies or individuals mentioned herein.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Should this contain any forward looking statements, understand they are not guarantees of future results. They involve risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from expectations.

All investing involves risk, including the risk of loss.

Past performance is not a guarantee of future results.

Information on the frequency and duration of US government shutdowns is from the US Department of the Treasury.

All data provided by Invesco unless otherwise noted.

NDAA stands for the National Defense Authorization Act.

The Greater Possibilities podcast is brought to you by Invesco Distributors Inc.