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Build Back Better 'still a longshot' ahead of midterm elections, analyst says

BTIG Director of Policy Research Isaac Boltansky joins Yahoo Finance Live to discuss the outlook for legislation ahead of the midterm elections, what investing themes might do well under a divided government, and the pipeline of political leaders on both sides of the aisle.

Video Transcript

BRIAN SOZZI: All right, let's stay on all things DC and bring in Isaac Boltansky, BTIG Director of Policy Research. Isaac, always great to see you. Really, I would say, interesting, to say the very least, pull out from the New York Times today on the Biden presidency. Only 13% of those surveyed see the country moving in the right direction. I'd love to get your take on that.

ISAAC BOLTANKSY: Look, I think that there are a number of reasons for that. And I think it's one of the reasons that we are so bullish about the house flipping to Republican control. But, look, this is a White House that, in some ways, appears somewhat rudderless. And I can argue that they have been this way since the beginning, and that we've seen this structural pull from progressives and centrists that I think has led to a fair amount of indecision from this administration. Whether it's Title 42 with immigration, or its student loan cancellation, or its China tariffs, you can point to a number of different areas where this White House has seemed indecisive or slow-moving. And it doesn't help that the public perception regarding the president's age continues to be an anchor on sentiment.

BRAD SMITH: And so with sentiment as well, is anything that has been talked about getting done or even campaigned on prior to the president taking office? And what's been the actuality? And that actuality has also meant you've run up against Kyrsten Sinema, people in your own party like Manchin as well. And so with that in mind, how much more critical does that make the midterm elections for the constituents who are looking at the Democratic party, and even on the other side where they're expecting on the GOP side, to run away with a mass amount of seats?

ISAAC BOLTANKSY: Yeah, look, we've joked before together as we've talked about this that the most powerful Joe in DC may not be Joe Biden. It's Joe Manchin. And we're continuing to watch the negotiations between Senator Joe Manchin from West Virginia and Senate majority leader Chuck Schumer over this last ditch effort to get a reconciliation deal done. As you remember, it used to be called Build Back Better, but now it's much more so build whatever Joe Manchin will let us build based on the total scale and scope of the negotiations.

There is still a shot for that. I think the odds are against it happening given the calendar and given the fact that they're still debating some really important issues from the SALT deduction to the global minimum tax. Let alone, we don't know what the House is going to do on that end. So, for me, I think that one's still a long shot.

There are some things that are going to pass later this year. I think you can get some semiconductor funding. Although, I agree with Kevin that it looks like the whole package is going to have to be slimmed down, or we're going to have to see some movement for that. We'll get our annual defense bill. I think we'll get cannabis banking and maybe some tax-- targeted tax provisions. But that's it, and then we're going to enter a period of divided government where nothing happens legislatively for two years.

JULIE HYMAN: For two years, Isaac. And so what do investors need to then be aware of as the sort of-- like, is there an outside chance that the Democrats, for example, do better than expected in the midterms? And what would the implications of that be? Or should we just sort of discount that as investors at this point?

ISAAC BOLTANKSY: You know, from my seat, I feel highly confident that the House is going to flip. Whether you're looking at history, in which case, the president's party typically loses on average 27 seats in the House. And the only time that the president's party has actually maintained control of the House has been when the President has a much better approval rating than President Joe Biden.

So what I tell clients is the House is going to flip. I can't tell you what's going to happen in the Senate yet. We're still waiting for some of those primaries. But the House is going to flip, which means divided government, which means the following. Number one, we're going to have more pressure on some of those big deadlines.

So, once again, we'll have to start caring about the debt ceiling again and the federal funding deadlines. I think that we'll see more administrative action from the alphabet soup that runs DC, from the CFPB to the EPA. Although that's going to be mitigated in some part by what the Supreme Court just came out and told us.

And then I think there are going to be a number of sort of esoteric one-off areas where investors can perhaps sink their teeth into some themes, whether that's private prisons or cannabis names. I think there's some one-off themes that you can pull out from a divided government scenario.

JULIE HYMAN: And I want to look even further out for just a moment, Isaac. As we talk about these approval numbers, as we talk about the concerns over Joe Biden's age, which seem to be fairly widespread, who else is there, right? I mean, that to me is the big question. If it's not going to be Biden, you know, we saw a very mixed field in the last election. So there's not, like, an obvious other choice, right?

ISAAC BOLTANKSY: There isn't. And that's why I'm starting to hear names mentioned that I think might surprise some of your viewers. I have heard numerous Democratic lobbyists mentioned to me that, if President Joe Biden does not run, does that clear a lane for Hillary Clinton to return? And that's in part because we're not talking about a super deep bench here on the Democratic side. I don't think that there's much belief that the vice president has a clear runway at this point. Time will tell on that end.

But I think my message to clients is that, you know, in this point-- at this point in the 2016 cycle, no one was talking about Donald Trump, right? And I think that it's just important to remind ourselves that we're 120 days away from the midterms. Then, after that, we can start looking at 2024. But my sense is that President Biden is unlikely to run again and the Democrats don't exactly have a clear front runner thereafter.

BRAD SMITH: OK, so the issue right now, too, though, is the fact that you've got so many young voters out there that the base-- that both parties are trying to rile up at this point in time around values that on one side, perhaps, people just do not agree with at all, and, in fact, are anti. And then on another side where you have been waiting for results to continue to come forward.

And so, with all of that in mind, the standard bearers, they are continuously some of the older population that don't have to live with the decisions that they make. Is that a clear thread? Is that a clear kind of thought that a lot of people are going to take with them to the polls to the midterm as we know that even around election reform, we've been having continued conversations around how it can just be more accessible while there's still this backdrop of people trying to make it less accessible?

ISAAC BOLTANKSY: Yeah, look, there's a lot in your point that we should pull the thread on, but I'll tell you this. From my seat, there are a number of reasons why we're having this problem. One of which is that we've narrowed the aperture through which qualified candidates can go through to serve the public, whether that's through a confirmation process or through running for political office. It's just much harder to get qualified people to want to go through, for example, a Senate confirmation process or a primary in which we see the extremes from both parties dictating the terms.

So that's one of the issues that I think we have, and one that, frankly, I think is being felt by the lack of a deep bench on either side of the ideological spectrum, and the lack of a clear center in the conversation as well. And so, look, I hate to say this. And this is why most people leave conversations frustrated with me, but there is no clear answer to fixing our political system.

We didn't get into this problem overnight. It's been generations of apathy, and frustration, and broken promises by both sides. And so there is no single panacea here. All that I can say is that I think that there are going to be a few acute moments of legislating over the next few years. We've got to watch those big deadlines like the debt ceiling, like the spending bills. But outside of that, the system is so broken that I'm surprised that we were even able to get things done like the infrastructure bill and the gun bill during this Congress.

JULIE HYMAN: Well, that's a frustrating answer, Isaac. You are correct. And a depressing one as well. But hopefully-- hopefully, things will get better at some point under someone. Isaac Boltansky, BTIG director of policy research. Thank you. Appreciate it.