Independence Day and Dysfunction Junction!

Hey Influence Traders,

It’s Independence Day – a day we salute the flag and celebrate this country’s declaration of freedom from the tyranny of England.

That declaration led to a war to create the USA.

And many more have followed.

So I also salute the men and women who have fought and died to keep us free.

I’ve always been proud of this country.

I believe in it and understand what makes it great.

The US was born of pride and a revolutionary spirit.

Much of that is often warped today, and I’m going to dispel a common misconception 

The Flag

On September 14, 1814, during the War of 1812 with England, Francis Scott Key penned the “Star-Spangled Banner.”

Key was being held prisoner aboard the HMS Surprise, from which he watched the attack on Fort McHenry in Baltimore.

The morning after the assault, Key saw the American flag still flying over the fort (then with fifteen stars and fifteen stripes), which led him to draft his poem “Defence of Fort M’Henry” (later called “The Star-Spangled Banner”).

The poem became our National Anthem in 1931, and Congress adopted the verse “In God We Trust” as our national motto in 1956.

Some people have tried to use a line in the third verse to paint the song in a negative light:

No refuge could save the hireling and slave / From the terror of flight, or the gloom of the grave / And the star-spangled banner in triumph doth wave / O’er the land of the free and the home of the brave

Any disparagement of the anthem in this case is born of ignorance.

So let’s dispel it.

The term “hireling and slave” refers to British soldiers.

At the time, the American military was a volunteer service.

The British navy, on the other hand, was made up of hired mercenaries and captured sailors forced to fight in service of the British against their will.

Those are the ”slaves” Key referenced.

Key’s poem was an homage to the tenacity of volunteer soldiers standing their ground for their beliefs in their country against the most formidable, but conscripted, military in the world.

It is a testament to the American spirit.

The DC System

Part of what makes this country great is the revolutionary structure that was put in place to govern.

We are not perfect, and we can always do better as a nation … but I challenge you to find a system that has created more innovation, freedom and growth.

The US Puts the Fun in Dysfunctional

It might seem like there is dysfunction in DC … and there is.

But the system works.

It has allowed the greatest country and economy in history to flourish.

Now, there are some classic battles looming in DC that will impact the economy.

From infrastructure deals to Democrats i- fighting on how aggressively they should push partisan agendas.

On the world stage, we’ve also got a chip shortage, supply chain issues and cyber wars that are rippling through the economy.

And the push is on by corporate America to influence all such decision making, since antitrust rhetoric is in the air.

This dysfunction is causing DC to be in a general “holding pattern” at the moment.

And that malaise is leaking onto Wall Street, which has seen recent volatility bottom out.

Jobs Reports

The U.S. added 850,000 jobs in June, exceeding expectations.

Despite the rise in service-related jobs, the unemployment rate ticked slightly higher to 5.9%.

This shows the wishy-washy nature of the economy.

Infrastructure Infighting

The Democrats presented a unified base during last year’s election in their quest to oust Trump from the White House.

But since January, internal tensions have been brewing between the progressives and centrists in the party.

(I’d argue that there are actually three sub-groups, centrists, left and far left, but we’ll run with two for now.)

That tension came to the surface this week in a special house election in Ohio’s 11th District to replace former Rep. Marcia Fudge.

A progressive challenger, Nina Turner, is making a #PowerMove, which caused moderate Democrats and senior leaderships, like House Majority Whip James Clyburn (D-S.C.), to publicly endorse Shontel Brown in an attempt to shut Turner down.

Elsewhere, it looks like the US is moving closer to a deal on infrastructure. Much of it focuses on brick and mortar to the chagrin of many progressives in the democrat party.

This is causing massive infighting among the Dems.

It’s putting pressure on the White House, which is trying to balance getting a deal done and appeasing a vocal part of its base.

It didn’t help that temps were setting records across the US this past week, including 116 degrees in Portland.

That gave ammo to progressives who noted that the $579 billion bipartisan infrastructure deal that has been brokered omitted many climate measures, such as major investments in renewables, the power grid and electric vehicles.

Progressives feel that the President is going against many of its own platform positions.

In response to the soaring heat wave in the West, Biden held a meeting with the governors of California, Colorado, New Mexico, Nevada, Oregon, Utah, Wyoming and Washington. 

The only thing that came out of it was Biden’s pledge to permanently raise the wages of federal firefighters from $13 to $15 an hour, and provide early satellite detection of fires and better firefighting equipment.

Many in the Democrat party believe that the clock is running on midterm elections and that all of the news is not good.

The president’s approval rating is down and Dem support of defund the police initiative is being blamed for rising crime rates across the country.

In an attempt to sway the infrastructure debate and draw attention away from the bi-partisan Senate proposal, the House passed a $715 billion proposal to fund transportation and water projects …

Just two Republicans voted for the package.

The House Dems want to shift the conversation from brick-and-mortar projects to more sustainable infrastructure spending.

The New Cold Wars

Russian based organizations are launching almost daily cyber and ransomware attacks on US companies, government agencies and infrastructure.

One this past week is estimated to have impacte more than 1,000 US companies.

And in case you haven’t noticed, we are in a supply chain cold war with China. (That includes semiconductors.)

And the Chinese are fired up!

The Chinese Communist Party celebrated its 100th birthday on July 1,  and used the event to make a push for global economic dominance.

President Xi Jinping delivered a fiery speech in which he said that any foreign countries that try to bully China will “have their heads bashed bloodied against the Great Wall of Steel." 

That sounds nice.

The irony is that the date of the birthday is wrong.

The first party congress in July 1921 was actually held on July 23, but Chairman Mao (who was in attendance) misremembered the date and established the holiday on July 1.

Unlike in the U.S., no one could tell him he was wrong, which defines our freedom.

But China is being effective at weaponizing global supply chains and the U.S. has thus far been ineffective at countering China’s influence.

In fact, a failure in DC to manage global supply chains is now rippling through the economy.

While DC is distracted with partisan infighting, and still obsessing over Trump, the private sector is suffering.

Ford (Ticker: F) said on Wednesday that several of its North American factories will be shut for a few weeks in July and August due to a global shortage of semiconductors.

It’s a shame because F is coming off a 117% rise in U.S. electric and hybrid vehicle sales for June.

In addition, F-branded SUV sales rose 37% in June, while its Lincoln SUV sales increased 23.3%.

The supply crunch is estimated to cost the company $2.5 billion this year and halve vehicle production in the second quarter.

Both F’s stock price and your pocketbook will take a hit.

Vehicle demand is rising and inventory is about to fall, which means that prices are going up – Economics 101.

With regard to the cyber and ransomware escalations, look for Andrew Giovinazzi and I to make some upcoming #PowerMoves in companies that defend our electronic shores. (The latest Power Moves Portfolio status can be found here.)

Corporate Influence

With infrastructure money up for grabs and Federal Trade Commission chair Lina Khan leading an antitrust crusade, the push is on by corporate America to influence DC decision making, particularly by Big Tech.

And pressure is coming from all directions.

For example, with the progressives heavily pushing a climate based agenda, Amazon (Ticker: AMZN) announced that its carbon emissions rose 19% in 2020 due to pandemic-fueled growth.

AMZN is already in Khan’s antitrust crosshairs.

Corporate America wants to help drive the legislative conversation.

To that tend I saw a recent publication that had the following job listings for positions in DC:

      • Amazon – 76 openings for “government affairs”
      • Apple – 98 openings for “government affairs”
      • Facebook – 583 openings for “public policy manager” 
      • Google – 103 openings for “public policy manager” 

Facebook (Ticker: FB) got an antitrust win this week when a federal judge threw out regulators’ efforts to break it up.

The judge tossed antitrust lawsuits brought against the company by the FTC and more than 40 states.

But FB shouldn’t sit on its haunches.

This is personal to Kahn and she will undoubtedly continue to pursue actions against Big Tech.

And it is not just public companies that need to fear the long arm of DC. 

The Financial Industry Regulatory Authority (FINRA), which governs the activities of Wall Street member firms, just issued Robinhood the agency’s largest-fine ever fine – a total of $70 million ($57 million fine to FINRA and $13 million to harmed investors).

FINRA accused Robinhood of misleading customers and for failing to provide support to them when asked, which caused “systemic supervisory failures and significant harm suffered by millions of customers.”

FINRA also claimed that Robinhood, in its pursuit of “democratizing finance,” let too many inexperienced traders make high-risk trades without properly educating them.

While FINRA is a self-regulatory agency, its actions are often followed by, and it works in tandem with the SEC, so the lines between government agency and private sector are sometimes blurred.

Moreover, Robinhood is pushing forward with its IPO which, when consummated, will place it firmly in the crosshairs of the SEC.

Lobbying Works — Look What It Did for These Companies

Lobbying both the US and foreign governments works!

For example, the Swiss Air Force has chosen the F-35 stealth fighter in a $5.5 billion deal to replace its aging F/A-18 and F-5 fighter jets.

The F-35, which is made by Lockheed Martin Corp. (Ticker: LMT), beat out the Boeing (Ticker: BA) F/A-18 Super Hornet, the Dassault Rafale, and the Eurofighter Typhoon.

Switzerland also announced it would buy five Patriot missile batteries from Raytheon Technologies (Ticker: RTX).

I’m thinking of adding RTX to the Power Moves starting Lineup. While trading at the high end of its 52-week range, it also just got a $2 billion contract to supply missiles to the U.S. Air Force.

In addition, RTX’s Collins Aerospace division, is making interesting #PowerMoves into the development of hybrid air vehicles. They hope to produce zero-emissions flying craft by 2030.

As the infrastructure deal continues to mature, we will be keeping a close eye on the ripples that DC creates for Wall Street.

Happy Independence Day!

Frank

 

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