One strike settled, one full steam ahead and a political season that should make for great viewing over the next 13+ months is the theme of the week. While the writers strike ended after nearly 5 months, the UAW continues its strike with vitriolic barbs levied by each side. Congress is at a stale mate over the debt ceiling and the Presidential primaries continue with Trump and Biden comfortably ahead in most polls. The US Ryder Cup team is in the process of a historically bad defeat and the oldest member of the Senate passed away Friday at the age of 90.
While some believe a debt deal will ultimately be struck before the deadline on Saturday, the most recent house proposal was struck down on Friday night. Currently,
21 republicans are opposing the bill put forth by Speaker McCarthy. This puts him in a tenuous position as he would have to cater to democrats to get a deal done and this most certainly would cause a rebellion in his party that could lead to his removal as Speaker.
The effects of any potential shutdown will not be felt immediately to non-federal workers as social security payments will continue and the USPS will continue to operate. However, most government programs will stop operations including programs assisting young children, approving of small business loans and the IRS will stop all audits. Additionally, about half of the federal government workforce will be furloughed and missing paychecks for the entire shutdown. In one of the most grotesque aspects of the shutdown, our military will be required to work without pay while Congressional members will be paid.
At this point, we do not see this has having a major effect on accredited investors although a long term shut down of the government would have significant impact to the overall economy.
Despite the utter dysfunction in Congress over the debt limit, the Opportunity Zones Transparency, Extension, and Improvement Act which has been stalled for over a year was reintroduced this week by a bi-partisan panel in the House. There was no text relating to the new bill that was introduced this week although no major changes are expected to what has been previously announced.
While there is no timing on when this may come up for a vote, this is a positive sign for the industry as there are very few if any vocal critics of the potential legislation. Importantly, this would extend the deferral date for two years and provide for Fund of Fund structures. This would enable much smaller investments into the program. Investments into single projects traditionally have minimums of $100k or more. While this is not an issue for ultra high net worth individuals, smaller adopters of the OZ program often struggle to diversify with these high minimums. Expect a flood of "Fund of Funds" to materialize over the next year which if structured properly will enable investors with smaller gains (say $25k) to invest in a Fund that could have access to many different OZ projects. These Funds will come in many shapes and sizes but when they materialize always look for the fee structures. Index Funds became the dominant public equity vehicles over the past thirty years due to their low fee structure. Expect the same issue to manifest itself in the OZ world.
One of the larger Opportunity Zone projects is full steam ahead as Cantor Fitzgerald has formed a joint venture with Silverstein Properties and Collins Capital Partners to construct 298 rental units and 28,000 sq. ft. of retail space. This is further example of the OZ program expanding not declining.
We have posted multiple articles on the shortage of critical minerals in the United States which could significantly delay adoption of renewable energies. China, as expected, followed through on their promise to stop exporting Gallium and Germanium in August. The edict does allow for certain Chinese firms to apply for export licenses although they must detail the recipient and use of these minerals. China's export ban was widely seen as a response to the Biden Administrations EV Tax Credit change. As part of the Inflation Reduction Act, the $7,500 tax credit is reduced if minerals from China are used in production.