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Wall Street Breakfast: Infrastructure Week

Aug. 02, 2021 6:59 AM ETBABA, GM, KHC, ROKU, HOOD, PFE, DIS, CP, CNI, LI, SQ, AAPL, GS, AFRM, PYPL, CNR:CA, CP:CA54 Comments
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Infrastructure week

Senators were back on Capitol Hill on Sunday as a bipartisan group of lawmakers put the finishing touches on a $1T infrastructure package. Touting the long-term economic benefits of the bill, key Democratic Senator Joe Manchin said the 2,702-page measure was likely to pass before the end of the week and would "keep us going for five to 10 years." The plan is one of President Biden's top legislative priorities and would be the largest investment in U.S. roads, bridges, ports and transit in decades.

What's in it? The Infrastructure Investment and Jobs Act includes $550B in new spending over five years, on top of $450B in previously approved funds. $110B would be allocated for roads and bridges, $66B for rail, $55B for water and wastewater infrastructure and $39B for public transit. There's also money for ports, high-speed broadband internet, replacing lead water pipes and building a network of electric vehicle charging stations.

Senators have clashed over how to pay for the package after ideas like raising revenue from a new gas tax were rejected. Current thought is to finance some of the bill through $205B in untapped COVID-19 relief aid, as well as unemployment assistance that was turned back by some states, but those sources might not pass muster with deficit hawks. The Senate could also impose changes that potentially complicate its chances of becoming law, like paying for the bill via tax hikes on corporations and wealthy Americans earning more than $400K per year.

Outlook: GOP Senator Susan Collins believes that at least 10 Republican senators will support the measure, enabling it to clear a 60-vote procedural hurdle. However, the bill would still need to get through the House of Representatives, where some Democratic progressives have suggested that the $1T price tag is inadequate. Democrats also aim to pass the bill alongside a second multi-trillion dollar package on "human infrastructure," though Biden has confirmed that the "physical infrastructure" proposal would not be dependent on that initiative. (52 comments)

No more lockdowns

The first trading day of August is opening with renewed excitement as U.S. stock index futures begin the month ahead by 0.6%. The major averages already managed to log their sixth month of gains in July, though volatility increased over worries about the rapidly spreading Delta variant. Progress on a massive U.S. infrastructure proposal also boosted sentiment, while concerns eased over China's recent regulatory crackdown.

Some caution: "Shares remain at risk of a short-term correction or volatility as coronavirus cases rise globally, the inflation scare continues and as we come into seasonally weaker months, but surging company profits in the U.S. and lower bond yields are providing support," said Shane Oliver, head of investment strategy and chief economist at AMP Capital.

Over the weekend, Dr. Anthony Fauci said the U.S. will not lock down again to curb COVID-19 but "things are going to get worse" as Delta fuels a surge in cases. "I think we have enough of the percentage of [vaccinated] people in the country - not enough to crush the outbreak - but I believe enough to not allow us to get into the situation we were in last winter." New coronavirus infections have increased five-fold from just a month ago, with states like Florida recording its highest case numbers for the entire pandemic.

On the economic calendar: The core personal consumption expenditure index, an inflation gauge that Federal Reserve officials keep a close eye on, increased 3.5% Y/Y in June, its fastest rate since 1991. But don't expect the central bank to take any action soon, with Fed Chair Jerome Powell saying he isn't going to change course on one month's data. Meanwhile, earnings season continues this week with results from Alibaba (BABA), General Motors (GM), Kraft Heinz (KHC) and Roku (ROKU). Of the 59% of S&P 500 companies that have reported for the second quarter, 88% have beaten consensus earnings expectations, according to FactSet. (2 comments)

'Buy now, pay later'

The payments industry is on fire as fintech companies continue to challenge banks and credit card companies by expanding into the space. A weekend deal saw Square (SQ) scoop up Australia's Afterpay (OTCPK:AFTPF) in an all-stock transaction valued at $29B as younger buyers eschew traditional credit for installment loans. The tie-up will be integrated within Square's existing Seller and Cash App and give "buy now, pay later" capabilities to its payments platform.

Quote: "Square and Afterpay have a shared purpose," Square CEO Jack Dorsey said in a statement. "We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles."

Following completion of the transaction, Afterpay holders are expected to own approximately 18.5% of the combined company on a fully diluted basis. Afterpay's technology allows customers to pay for goods in interest-free installments while receiving the goods immediately. Users only pay a fee if they miss an automated payment, which also locks their account until the balance is repaid.

Flashback: Last month, Bloomberg reported that Apple (AAPL) was developing a new service - in partnership with Goldman Sachs (GS) - that would allow consumers to pay for Apple Pay purchases in installments. While the company already offers monthly installment payments through the Apple Card, the new service would allow users to choose any credit card to make their purchases over time. It would also put the tech giant in direct competition with Affirm Holdings (AFRM) and PayPal (PYPL) for "buy now, pay later" options. (82 comments)

What's next for the housing market?

A tsunami of deferred debt is about to hit homeowners after a national foreclosure moratorium expired on Saturday. According to the Washington Post, 1.8M homeowners are delinquent on their mortgage as the safety net was removed, with around a fifth of them not able to extend their forbearance past September. 1.5M more are at least three months behind on their mortgage without the protection of a forbearance plan.

Bigger picture: Congress has approved $10B in federal assistance to help homeowners pay off debt, but the program is moving so slowly that protections may expire before states figure out how to dispense the money. On July 23, the White House announced that many homeowners with federally backed mortgages may be eligible for a reduction in their monthly mortgage payment, though individuals who are still in forbearance may be evicted or displaced if selling is the only option. An estimated 1 in 10 borrowers in forbearance will not even have enough equity to sell.

Renters are also in the mix: The eviction moratorium put in place under the Trump administration during the onset of the pandemic aimed to shield tenants who missed monthly rent payments from being forced out of their homes (they still owe back rent). It was originally set to expire on Dec. 31, 2020, but Congress stretched the order until late January, and it was then extended several more times under the Biden administration. While the moratorium has protected millions of tenants, it has also resulted in financial hardships for landlords. Property owners, which say they are losing $13B a month in unpaid rent, are still liable for taxes, insurance and maintenance costs tied to their real estate.

New supply on the market? Housing prices have only continued to escalate in 2021, driven by historically low interest rates, savings accumulated during lockdowns and a desire for more space as people work from home. That has triggered increased demand, while supply has lagged due to material prices and labor shortages. In fact, the price of the typical U.S. home rose 13.2% over the past year, per Zillow, marking a record rise since the firm started collecting data in 1996. More supply may help put a lid on a prolonged period of price growth, which if left alone might eventually turn into an unsustainable boom that could push activity into reverse. (8 comments)

Today's Markets

In Asia, Japan +1.8%. Hong Kong +0.9%. China +2%. India +0.7%.
In Europe, at midday, London +0.9%. Paris +0.8%. Frankfurt +0.1%.
Futures at 6:20, Dow +0.5%. S&P +0.6%. Nasdaq +0.6%. Crude -1.6% at $72.77. Gold -0.3% at $1812.70. Bitcoin -5.2% at $39606.
Ten-year Treasury Yield -1 bps to 1.23%

Today's Economic Calendar

9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending

Companies reporting earnings today »

What else is happening...

Reflation narrative deflates as Fed's overnight RRP takes up over $1T.

Cathie Wood's ARK Invest picks up more Robinhood (NASDAQ:HOOD).

Fully vaccinated people made up 74% of cases in Massachusetts outbreak.

FDA to speed up review for full approval of Pfizer (NYSE:PFE) jab - Stat.

Will Jungle Cruise rock Disney's (NYSE:DIS) online strategy?

Chinese tutor companies cancel earnings releases amid regulatory developments.

Kansas City Southern (NYSE:KSU)-Canadian National (NYSE:CNI) deal likely to be rejected.

Credit card metrics continue to grind lower as forbearance plans end.

Chinese EV startup Li Auto (NASDAQ:LI) shows strong momentum in July.

Metaverse investing: The Internet revolution will not be televised.

This article was written by

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Comments (53)

the crap is about to hit the fan and everbody knew it was coming, small landlords with less than four units are being devistated and some are in foreclosure, tennants being evicted due to no rent payment even collecting elevated unemployment. how is this going to shake up the economy for the next few months
USPS profile picture
Just gonna leave this here...smh...

Democrats also aim to pass the bill (Human Infrastructure) alongside a second multi-trillion dollar package...
Don’t look now, the 10yr note is yielding 1.167%, as the European and Chinese economies are slowing…

Delta Variant is spreading globally and cases are near all time highs outside the USA…

The US stock market is an island of prosperity and is not vulnerable to a 15-19% correction …

US Corporate hacking continues unabated by any warning to Russian President Putin…..
@Maverick 2021
Your right and isn't the dollar stronger now
With a Delta variant here is it possible that there are other variants coming?
Ben Gee profile picture
@lasalle1311 There will always be other variants, the question is when and how bad?
@lasalle1311 - Certainly, Republicans in Florida (among other red states) are providing the hosts for the virus mutations.
@Ben Gee
I don't think there will be any more mutations severe as the delta varriant
Typical blind politicians. Vote to spend our money 'on an infrastructure bill' which every new president gets in its first year, tragic.

We should be spending money on solving the pandemic health crisis, not pumping infrastructure so people slow walk projects to make more money.

South Korea has the right idea, look at SK Bioscience up+15% yesterday at their recent vaccine news, = new and better tools to fight the covid pandemic coming out,

spend money on solving the problem, florida is a total mess right now, and they want to pump more ineffective mrna, geez
@H Pilot 1 The infrastructure bill is a "long term" investment, not a short term one. We have several vaccines not just mRNA ones: www.mayoclinic.org/...

Florida is a total mess, due to a refusal to isolate, vacinate or mask (the governor just signed a bill financially penalizing schools who mandate masks, for example).
@StockTurtle "long term" investment? yeah just like all the previous ones, huh

it goes into the giant black hole, and feeds government salaries,

you get Bden to take a picture with every new bridge or bridge repair and then I'll give it credit otherwise, no

Blame the governor, right? no. - Only weeks ago mrna vaccines were supposed to keep you from getting sick, and now they openly admit this is not the case. Fantastic right? no. Love how you blame masks now, and give failed vaccines a total pass.
@StockTurtle LTFU is an acronym that everyone should get familiar with,

it's required for mrna gene therapy to be brought to full market, and $MRNA and $PFE need to do it

LTFU (long term follow up) is the hot mrna topic du jour,
metalhead profile picture
Back-to-office plans getting "deep sixed" by Delta:

GratefulGuy57 profile picture
"though Biden has confirmed that the "physical infrastructure" proposal would not be dependent on that initiative." There is an exclusive club of politicians at the national level (and yes they are in both parties) that I trust to say what they mean, and have the fortitude to follow through. President Biden is not one of them.
95% of infrastructure has to go through the states and bids will be given out to trusted low bid companys and little additional employment will happen
"Notably, 274 (79%) of vaccinated patients with so-called “breakthrough infections” were symptomatic. Out of five hospitalizations, four were fully vaccinated, but there were no deaths, the federal agency said."

The pandemic is over. That's why our lovely media is hyperfocused on cases and completely ignoring death rates.
Somehow right....the numbers are not that bad and if more people will be vaccinated will telax even further. The vaccination works but the medias does no great job of showing the successtory.
"As the facts change, I change my mind." Tough talk in an era of "takes" when the name of the game is establish a "take" and then ride or die with that "take.'
JAMES CARLINI profile picture
With the Delta variant becoming the new "concern" - work-from-home will continue to become a more permanent fixture across many companies. With more people working-from-home permanently, commercial real estate will become the equivalent to "reverse Musical Chairs" where instead of less options to chose from, many more buildings will have "available space" with less demand from corporations. ALL buildings that are technologically obsolete, will lose occupancy and never regain what is left.

We are beyond anecdotal evidence on this and have seen in one corporate survey (of a sampling rate of 1.000 employees nationwide) that shows from a pre-COVID survey to a recent survey the amount of people who wanted to "work-from-home" 100% rose from 6% of the respondents to 46% of the respondents.

That is a very significant rise on employees wanting to work out of the house (where they are now) and as more companies see that, they will decide to shrink their corporate leasing footprints and save real money.

ALSO, seen within the same time period, productivity has risen 20-26% over productivity when it was strictly in the office. With that type of increase, companies will see more benefit (and work) coming from those working-from-home.


blueline profile picture
I'm not sure all at home work has become more productive but one woman I know that is still working from home has definitely become more productive.

She used to work 8-4:30 and then turn her computer off and leave. She now starts at 7ish to 5-6 pm with flexible breaks throughout the day. The company gets extended coverage when they need it without any increase in labor costs and the employee saves two hours of driving and gas and tolls and wear on her car. Win win.
@JAMES CARLINI as a person working in tech/finance, I can only find jobs in big cities but refuse to live in a big city, so thank goodness! I have commuted over 500k miles over the last 20 years. The finance company I work for has a very conservative work culture, so I thought, no way they will allow work from home. Well...they are trying a policy where you work 3 in office and 2 at home. They still might end up losing me to completely remote job.
I wouldn't doubt you james but I think that in 8 months no matter what the media squaks covid will be like any other desease and not the prime thing on peoples minds
Invader from Earth profile picture
COVID-19 Delta variant seems to have slipped through the vaccines. I need more information on the seriousness and Ro factor, which may be similar to the measles Ro factor? Ouch! This is deadly serious and we need emergency attention to this by the medical community…
Invader from Earth profile picture
Good for Cathy Woods for picking up more $HOOD. It’s good to see Wall Street to react do well to the BULLish $TSLA. They had a fantastic 2Q21 and FSD will change civilization for the good. Imagine homes with no garages or driveways….just Robocab! Fantastic investment. Please don’t be the last one to have one….
What about the COVID 19 Colombian variant here in FL.

Not a word.
blueline profile picture
They can't hype it yet. They have to wait until Delta fizzles.
@Bobkxx The way you people in Florida have acted about Covid since the beginning...anti-vaccinations, anti-masks, with a governor who epitomizes Trump's blindness about Covid, just what "words" are you expecting to hear? I have two words that fit the situation in Florida... Good luck
@G-man$$ You don't know what you're talking about. DeSantis isn't anti-vax or anti-mask, he's just anti-authoritarian. As for Florida, the oldest state in the US, it currently ranks 9th in terms of per capita cases and 26th... 26TH IN PER CAPITA DEATH RATE! Again, in the oldest state in the union... How do you explain that one?
blueline profile picture
"Fully vaccinated people made up 74% of cases in Massachusetts outbreak"

I've heard this repeatedly in Israel and the UK.

Could it be that unvaccinated people have natural immunity that is more effective against Delta than the vaccines are? Or is there something in the vaccines that make people more susceptible to the Delta mutation?

Experimental vaccines often hold lots of surprises.
Hospitalization rate, death rate and heavy cases went down deastically in these countries. Also if you read and listen carefully noone ever said you can't get sick.
blueline profile picture
[Democrats also aim to pass the bill alongside a second multi-trillion dollar package on "human infrastructure,"]

I wonder what the life expectancy is for geese that lay golden eggs?
Thanks for the article. Helicopter money may be coming to an end sooner rather than later. Better start looking harder for a job to pay the bills if you don't have one. Employers are even offering incentives for now, better look now rather than when 7 million others all look for jobs at the same time. The sooner the better if you are behind on the rent, and before September would be smart.
Or being evicted will rush the job application process
JAMES CARLINI profile picture
Stores-of-value do NOT include cryptocurrency - why? It is because it is too volatile - end of story. When will some start to understand this?

Until something drastic happens, like several central banks recognize cryptocoins and large governments (like the US, China, Russia, Great Britain,. etc ) totally "accept" cryptocurrencies, any cryptocoin will never be an accepted store-of-value.

Real estate, fine art, precious metals (gold, silver), precious gems (over 10 carats), bonds are all "stores-of-value" (in some countries, livestock is considered a store-of-value). Stocks are considered speculative (as are ALL cryptocurrencies at this point)

Remember that, when someone says "put your money into a cryptocoin - it's the new "store-of-value" -- IT isn't!
@JAMES CARLINI I agree on cryptos, no earnings [maybe crypto miners are ok if you can beat energy costs], no revenues, and must rely on greater fools to give value to your store. But then again, when I look at "fine art", you probably need greater fools there also lol. Sometimes it reminds me of finger painting in kindergarten. Why a bunch of straight lines painted on a canvas is worth millions versus other straight lines on canvas is beyond me.
Green Elmo a.k.a. User 48289781 profile picture
"Art has shown resilience in inflationary periods, better than real estate AND gold

The only problem? You needed millions to build a portfolio of blue-chip art. Until now.

This startup has fractionalized an asset class estimated at $6 trillion

So you can invest in art at a fraction of the price."

You too can own a fraction of a Hunter Biden masterpiece.
@Green Elmo a.k.a. User 48289781 But fractional art doesn't give you access!
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