AGF Management: The Ukrainian Counter-Offensive; Biden hits the national agenda


THE COUNTER-OFFENSIVE: Ukrainian troops drove the Russians out of the strategically important town of Irpin, on the outskirts of kyiv. The developments on the battlefield are extremely important as negotiations resume today.

THREE CONCLUSIONS SEEM INCREASINGLY APPARENT: First, Ukraine can retain kyiv and much of the west, despite Russian bombardment. Second, Russian losses have been enormous, as its troops are out of supplies. Third, the Russians will continue to bomb much of Ukraine with impunity.

THESE CONCLUSIONS WILL OPEN THE GROUND for today’s negotiations in Turkey, as the seeds have been sown for an agreement within a month, if not days. Neither Vladimir Putin nor Volodymyr Zelensky has the troops or supplies to continue this war any longer.

THESE BATTLEFIELD DEVELOPMENTS are more important than the heated regime change debate that has mesmerized the Washington press. Joe Biden doubled down yesterday, reinforcing the belief that he and his top advisers are not on the same page, which is perplexing US NATO allies.

A FRIEND ASKED US YESTERDAY HOW THIS WAR IS ENDING: Our best guess – 70% chance – is that a stalemate and partition are likely, with Russia keeping territory in the east and Ukraine vowing not to join NATO – not much for Zelensky but his people would be spared further carnage.

BUT THERE IS A 30% CHANCE that Ukrainian troops will continue their counter-
offensive, driving demoralized Russian troops from most of the country. It would be
make Putin even more erratic and slimy, of course.
* * * * *
THE WHITE HOUSE GOES TO THE NATIONAL AGENDA: Presidential budgets are quickly thrown out – but not this one. Yesterday’s revealing 2023 budget proposal barely mentioned the Build Back Better plan, while emphasizing increased spending on policing and controlling illegal immigration.

DEFICITS WILL ALWAYS BE HIGH – well over $1 trillion a year as far as the eye can see
can see – but well below the $3.1 trillion in fiscal year 2021. As a percentage of GDP,
the deficit would drop from 12.4% of the country’s overall economy in 2021 to around
4.8% in 2032, if Biden’s projections are to be believed.

LOTS OF CRAZY MATH: The proposal makes no meaningful cuts to spending, and its higher tax assumption rests with Congress, where tax hikes face an uphill battle. And the budget’s GDP and interest rate assumptions are ambitious to say the least.

BUT THE DOCUMENT PROVIDES COVERAGE for most Democrats seeking re-election in November. It contains a 10% increase in defense spending (which will likely increase even more) and a significant increase for the police. “The answer is not to fund our police departments. It’s to fund our police and give them all the tools they need,” Biden said.

IN A STUNNING REVERSAL, Biden would increase spending by about 13% on customs and border protection, presumably to curb illegal immigration. Its budget even includes $19 million for border closures.

Needless to say, the PROGRESSIVES were sullen, with the BBB plan on sustaining life. A few pieces of it — cutting the cost of prescription drugs, for example — are still alive, but Senator Bernie Sanders summed up the mood of his allies. “At a time when we already spend more on the military than the next 11 countries combined, no, we don’t need a massive increase in the defense budget,” Sanders said.

BOTTOM LINE: We would be overreacting to call this a frugal budget, but two conclusions stand out: first. the rate of increase in spending is clearly slowing down. Second, Biden has moved to the center, but Republicans will nonetheless say he’s overspending — and the GOP still has the upper hand in this fall’s election.

The views expressed in this blog are those of the author and do not necessarily represent the views of AGF, its subsidiaries or any of its affiliates, funds or investment strategies.

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AGF Investments is a group of wholly-owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisers in the United States. AGFI is a registered portfolio manager with Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that make up AGF Investments manage a variety of mandates consisting of equities, fixed income securities and balanced assets.


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