Weekly Roundup – Round Robins, Canals, and Infrastructure

Hey Influence Traders,

Its the weekend, which means its time for the Weekly Roundup.

The Highlights

      • Mark Sebastian and I are in mourning since Villanova has been knocked out of the tourney. There’s always next season.
      • But Mark did convene his cabinet this past week and the OptionPit Round Robin was a massive success.
      • The president continues to round out his secretaries.
      • A Giant, with a capital G, infrastructure plan is in the works.
      • We’ve got a bunch of Power Movers and Power Losers.

DC Action

We had a couple of key confirmations and nominations occur this past week:

      • Marty Walsh was finally confirmed as Secretary of Labor by a 68-29 vote.
      • He is the last of Biden’s cabinet nominees to be confirmed. 
      • Walsh will be a staunch union advocate having been a former union leader and it is anticipated that he will spearhead a rewrite of a lot of labor rules.
      • Walsh, who is also known as the Climate Mayor while at the helm in Bostin, will push for greater use of environmental, social, governance (ESG) factors in retirement portfolios. That could impact the $17 Trillion retirement market, which could cause a lot of capital to flow towards ESG friendly mutual funds and ETFs.
      • Dr. Rachel Levine was confirmed as the Assistant Secretary for Health and Human services in a contentious 52 – 48 vote.
      • Susan Collins (R-Maine) and Lisa Murkowski (R-Alaska) broke ranks and voted with the Democratics.
      • Dr. Levine will report to HHS Secretary Xavier Becerra, who was also narrowly confirmed by a 50-49. Susan Collins also voted with Democratic colleagues in supporting him.
      • Becerra and Levin will oversee all the federal health agencies, including the Centers for Disease Control and Prevention and the Food and Drug Administration, and will be responsible for carrying out the administration’s health agenda.
      • Biden nominated Lina Khan, a Columbia law professor, to the Federal Trade Commission.
      • That spells trouble for tech firms, which have been under the microscope on Capitol Hill.
      • Kahn is a staunch antitrust advocate and her nomination signals an intent by the administration to be aggressive on antitrust enforcement. She has been known to call out Amazon and other major tech platforms and advocate for an overhaul of competition law.

Power Mover of the Week

      • Taxes: The IRS announced that face masks, hand sanitizer and disinfectant wipes can qualify as medical expenses for tax deductions or can be paid for with money from tax-advantaged health accounts.
      • “The purchase of personal protective equipment, such as masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of coronavirus are deductible medical expenses,” the agency said in a statement.
      • Taxpayers qualify for the deduction if they have medical expenses that exceed 7.5% of their adjusted gross income.
      • Broadband: A Soyuz rocket took off from Russia and deployed 36 OneWeb internet satellites into orbit.

OneWeb, which is based in Florida, is building-out of a planned fleet of 648 spacecraft to provide global broadband services.

Each OneWeb satellite weighs about 325 pounds and were separated from one dispenser.

It’s something you’d see in a SciFi movie.

But my Power Mover of the Week is – Infrastructure

The Biden administration is pushing forward with a $3-4 trillion infrastructure plan.

As I explain below, it will create a lot of opportunities.

Power Loser of the Week

Once again, it is a long and distinguished list of candidates:

      • Andrew Cuomo: The NY AG’s office subpoenaed his aides this week, so the noose is tightening.
      • Ellen DeGeneres: Her show has lost 40 percent of its audience.
      • Last year Ellen’s show was accused of abusive conduct on set.
      • Ellen decided to apologize.
      • The good news was that a ton of viewers tuned in for the apology, so the season opener had the highest ratings for an Ellen premiere in four years.
      • The bad news is that since apologizing for the accusations of workplace misconduct, her talk show has lost over 1 million viewers, or more than 40 percent of its audience.
      • South Beach: It’s seeking a new image. Riots, looting, and over 1,000 arrests and nearly 100 gun seizures have already taken place this spring break season.
      • The City of Miami Beach is trying to clean up law-breaking, party atmosphere in South Beach, and has already banned alcohol from beaches and canceled concerts and food festivals.
      • Not good for a tourist economy trying to rebound.
      • AstraZeneca (Ticker: AZN): May have falsified some of its Covid-19 data.
      • The company announced that it may have relied on “outdated information” that “may have provided an incomplete view of the efficacy data.”
      • Mainstream News: CNN, the New York Times and the Washington Post have all lost considerable portions of their audiences.
      • The Washington Post reported that since the inauguration, news consumption has significantly declined, with CNN losing almost half of its primetime viewership in the key 25–54 demographic, unique visitors to the NYT’s website dropping 17% fand the Washington Post suffering a 26% decline.
      • But my Power Loser of the Week is … Global Supply Chains.

A ship as long as the Empire State Building is tall, got stuck in the Suez Canal, clogged global shipping and threw supply chains — including oil — a freefall.

Egyptian authorities are working to dislodge the Ever Given, a giant 1,312-foot-ship container ship that can hold more than 20,000 containers.

Meanwhile hundreds of vessels are sitting idle and the traffic jam is disrupting supply chains, including for oil and chips for cars and computers.

Predicting Early Infrastructure Moves

Infrastructure spending is where the real money lies.

On the campaign trail Biden pledged to invest $2 trillion to fix highways, bridges and airports, build climate-resilient homes, wire cities for broadband internet and encourage the manufacturing of electric vehicles and EV chargers.

Senior Democratic officials have proposed spending more than $3 trillion.

Meanwhile, the American Society of Civil Engineers recently gave the country’s overall infrastructure a grade of D+ and said $5.9 trillion must be spent over the next decade.

Whatever the end amount, it will be a lot of money.

The money will be balanced across fixing traditional bridges and tunnels and driving new innovation.

The spending will most likely be split into two pieces, with one on the infrastructure and a second that will include more people-focused proposals, like free community college, universal pre-kindergarten and a national paid leave program.

Focus on Green Energy

The plan will spend heavily on clean energy deployment and the development of other “high-growth industries of the future” like 5G telecommunications, including money for rural broadband, advanced training for millions of workers and a million affordable and energy-efficient housing units.

Green initiatives require traditional commodities like mining, petroleum and coal, so those are not going away.

Taxes are Going Up

We have to pay for the spending, which means taxes are going up.

One target is raising the corporate rate for 21% to 28%, which will in turn cause prices to go up.

BofA Securities has estimated that the Biden tax plan will reduce S&P 500 earnings by 7%, with the following specific sectors hit the hardest:

      • Technology                                 down 9.2%
      • Health care                                 down 8.4%
      • Communication services          down 8.2%
      • Consumer discretionary           down 7.5%
      • Financials                                    down 6.5%

Inflation Has to Go Up … at Some Point

Combine massive injections of money with higher corporate taxes and you are bound to get inflation, which can erode purchasing power.

Dividend stocks are a classic inflation hedge, so I like ones that will benefit from infrastructure spending.

Sand & Gravel (The New Brick & Mortar)

Vulcan Materials (Ticker: VMC), is America’s largest producer of crushed stone, sand and gravel, and a major producer of asphalt and cement.

VMC’s sales are split between private-sector buyers (residential and nonresidential building construction) and government buyers (highway and building infrastructure), so even without an infrastructure bill it could achieve growth.

And since they are based in Alabama, they fit in well with Biden’s Buy America push.

VMC has a 0.92% dividend yield, has increased its dividend the past three years by an average of 10.79% per year and pays out 31.49% of its earnings as a dividend.

Metals

My metals play is a bit aggressive, unlike past calls.

Vale (TICKER: VALE), is a Brazilian company that is one of the top-3 miners of iron ore, as well as a leader in nickel mining, copper, gold, silver and other metals that are critical to infrastructure spending.

VALE has had a tough 10-year run in which it lost almost 95% of its value, but it is rebounding and has a long way to go before touching old highs.

While not an American company, it fits well into the Biden administration’s focus on sustainability, as 80% of its electricity usage is sourced from renewables, primarily solar and wind farms.

VALE has a dividend yield of 5.15%, almost a 200% year-over-year increase, and it pays out 53.75% of its earnings out as a dividend.

Internet & Towers

Biden’s campaign pledge to “build back better" specifically called for the building of “modern infrastructure,” which included a promise to provide universal broadband coverage.

With the emergence of fast 5G mobile internet, it’s a lot cheaper to blanket a region with cell towers than it is to string new cables, and these companies are well positioned:

Crown Castle International (Ticker: CCI), is one of America’s leading wireless tower REITS with more than 40,000 cell towers and around 80,000 small cells.  

It benefits from both infrastructure spending and mobile data usage.

CCI has a dividend yield of 3.17%, pays out 93.50% of its earnings as a dividend and has a stated goal of growing its cash distribution by 7% to 8% per year.

American Tower Corp (TICKER: AMT), is headquartered in Boston and is another REIT that owns and operates wireless and broadcast communications infrastructure in several countries.

It is trading around $227, but analyst price targets are as high as $290, due in part to its recent announcement that it has entered into a master lease agreement with DISH Network Corp. (Ticker: DISH) for lease space on up to 20,000 AMT communications sites.

AMT has a dividend yield of 2.13%, has grown its dividend for the last nine consecutive years, is increasing its dividend by an average of 20.02% each year, and pays out 62.61% of its earnings out as a dividend.

Cutting Through the Noise for You.

Frank

 

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