Spending Bill Breakdown

Hey Influence Traders,

It’s going to be a roller coaster week for the Biden Administration.

They got a quick win on Monday when the President signed the $1.2 trillion infrastructure bill into law.

But the CBO is supposed to release its score on the boondoggle spending bill (the “Build Back Better” plan) on Friday.

A bad score will give Joe Manchin the air cover he needs to delay the vote indefinitely.

Inflation is already going vertical and many politicians don’t want to dump coal on that fire.

The inside word from Dem leadership is that they are expecting a good score and for Manchin to cave.

The real world is not so sure.

To prep, Dem operatives are working overtime to try and convince the public that injecting $1.75-$1.85 trillion of new capital into an already bloated economy will reduce, not add to, inflation concerns.

That would be some fine slight-of -hand, I mean magic, I mean …

Infrastructure Bill

In a joyous White House ceremony to mark a much-needed political win, President Biden signed the $1.2 trillion bipartisan infrastructure bill into law on Monday.

Surrounded by lawmakers from both parties, Biden claimed that the bill will improve the day-to-day life for many Americans by replacing lead pipes, implementing broadband and improving public transit.

The bill passed with House lawmakers also agreed to take up his boondoggle bill through budget reconciliation, a social spending bill focused on climate, childcare and health care programs. 

The $1.2 trillion bill contains roughly $550 billion in new funding.

It will provide for new investments in roads, bridges and railways, and will replace lead pipes to provide clean drinking water to communities, establish a network of electric vehicle charging stations and help expand internet access countrywide.

Former New Orleans Mayor Mitch Landrieu (D) has been designated by Biden as a senior White House adviser to coordinate the implementation of the bill.

Most economists agree that the bill is necessary to upgrade critical infrastructure and will help people and businesses from electric vehicle manufacturers to rural web surfers.

Spending will also go to help clear backlogs at the nation’s ports, although no details have been announced.

As an indication of his priorities for the bill, the President will head to a General Motors (Ticker: GM) plant to highlight funding as many as 500,000 electric vehicle charging stations and improving the nation’s electric grids.

While a lower funding amount than initially proposed, Biden believes that this money will accelerate a shift to lower-emission cars and trucks.

The spending package was intentionally designed to deliver money over several years, in part to avoid fueling inflation, unlike the boondoggle bill that will directly inject money into pockets.

However, officials announced yesterday that the administration will focus on “shovel-worthy” projects to dump money into the economy more quickly. 

I score the bill as having a positive inflationary impact.

CBO to release Build Back Better score by Friday

The Congressional Budget Office (CBO) expects to release a full cost estimate of the Build Back Better “Boondoggle” Bill by the end of the day Friday.

Pelosi is biting her nails as she wants to get a vote on the bill before the end of the week.

When they struck a deal to move the infrastructure vote forward, party moderates agreed to vote for the social spending package once a CBO score was received.

That agreement was referenced, not so subtly, by VP Harris at the infrastructure bill signing who noted that “This bill, as significant as it is, as historic as it is, is part one of two.”

Even if the bill passes the House, it faces hurdles in the Senate where it is likely to be tweaked if passed at all.

Joe Manchin has expressed reservations about moving too quickly on the bill and has made it clear that a bad CBO score will indefinitely delay it.

And some early signals are not looking good for a perfect score.

A left leaning tax policy group stated that provisions included in the bill would violate Biden’s pledge that tax hikes will only affect Americans earning $400,000 or more.

The Tax Policy Center noted that “Taking into account all major tax provisions, roughly 20 percent to 30 percent of middle-income households would pay more in taxes in 2022.”

While the tax increases would be “very small," any hike would contradict Biden’s oft-repeated claim that tax hikes implemented to cover the cost of his $1.75 trillion spending bill would only apply to the wealthiest Americans.

Republicans have argued that is not the case and will jump on this news.

On top of that, even some House moderates have conceded that the bill will not pay for itself as intended.

Part of the President’s plan is to beef up the IRS to crack down on tax evaders to raise revenue.

But the director of the CBO stated on Monday that the IRS proposal would yield far less than what the White House was counting on – about $120 billion over a decade versus the $400 billion that the administration is counting on.

If that is reflected in Friday’s report it will be a huge setback for the legislation.

All of this means that additional tax hikes will be necessary, and that will not sit well with the Manchins on the Hill.

Best Defense is a Good Offense

In anticipation of bad news, administration officials are urging lawmakers to disregard the budget office assessment.

They argue the CBO is overly conservative in its calculations.

With regard to its inflationary impact, the Biden admin, including Treasury Secretary Janet Yellen, went on the show circuit over the weekend to push the narrative that the best remedy for inflation is to pass the multi-trillion-dollar social welfare and climate change bill. 

Here’s the “logic” – the bill will boost the social safety net and make it easier for people to return to work.

According to Yellen, higher labor force participation, especially among women, will help lower inflation.

She thinks that a lack of money for child and elder care is making women stay home.

So, to summarize, giving people who are staying home more money will urge them to go back to work, and inserting money into an already bloated economy will lower inflation.

The poverty threshold for families with children is $26,354 per year.

Currently, those families can receive up to $65,200 in cash, food, housing, medical care and educational support from taxpayers. If passed, the boondoggle bill will add another $11,300 to that total.

I’m not sure how $77,000 in government benefits will encourage people to go back to work.

Even the NY Times noted that the primary culprit for current inflation is the “great shift in Americans’ purchasing and employment patterns.”

In a sign of further inflation, Tyson Foods (Ticker: TSN), which produces around one in five pounds of all beef, chicken and pork in the U.S. announced price hikes on all food items.

That hike will push revenue up about 12% to $12.8 billion and increase earnings to $1.36 billion … close to a year over year double.

But it will also hit our pockets during the holidays.

Tough Timing

Speaker Pelosi wants a vote by the end of the week.

Even if she gets it, the future of the bill in the Senate is unclear and lawmakers are bracing for debate on it to keep them in town well into December. 

Schumer has prioritized the National Defense Authorization Act before Thanksgiving, meaning consideration of the boondoggle bill will slide further into December.

Inflation and Biden’s Fed pick

The President is considering whether he should renominate Federal Reserve Chairman Jerome Powell for another term.

And inflation is looming large over that decision.

Power Income guru Bill Griffo might disagree, but the Vegas odds makers are long Powell winning another term in February.

He has broad support among both parties, is seen to have adequately addressed the pandemic-driven market meltdown, and generally sees eye-to-eye with Biden on market issues.

On the flip side, Biden is getting pressured from the progressive wing of his party, which seems to have more and more influence, to replace Powell with a dovish Democrat.

They want someone who will support tighter financial regulation and a more aggressive response to climate change.

So far, the decision is being kept quiet.

FDA – Revolving Door

President Biden is nominating Dr. Robert M. Califf, a former commissioner of the Food and Drug Administration during the Obama administration, to lead the agency again.

The FDA has been without true leadership for years.

If confirmed, Califf will lead an agency that is responsible for more than $2.8 trillion worth of food, medical products, and tobacco.

The FDA regulates products accounting for about 20 cents of every dollar spent by consumers in the United States.

A number of prior candidates were dropped on complaints that they were too close to the pharmaceutical industry.

Califf is a former cardiologist who has been a forceful advocate for tobacco control.

But he has long been a consultant to drug companies and ran a research center at Duke University that received funding from the drug industry.

During his previous stint as commissioner, Dr. Califf sought to permit pharmaceutical companies to advertise off-label uses for F.D.A.-approved products, which was blocked by other agencies since the practice is not actually permitted.

Is there truly no one qualified to lead the agency who does not have ties to Pharma?

Acting Commissioner Dr. Janet Woodcock was considered for the helm but was highly criticized (including by Senator Joe Manchin) for being too close to the pharmaceutical industry.

Manchin holds Dr. Woodcock responsible for the approval of opioid drugs that devastated his state and made it clear that he would never vote to confirm her.

I’m going to discuss some of the issues and politics around the bills, as well as some potential Biden appointees.

Tomorrow, trading guru Andrew Giovinazzi and I are going to go even deeper at 2pm EST with a Capitol Gains show and tell you some trades that we think could benefit from these bills.

Register to join us here.

DC is creating ripples in the market.

The live Power Moves Portfolio trade log is here.

Cutting Through the Noise for You.

Frank

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