Wall Street Breakfast: 'We Have A Deal'

'We have a deal' - Cyclical stocks like Caterpillar (CAT) and Vulcan Materials (VMC) took the lead in afternoon trading on Thursday after President Biden announced a bipartisan deal on infrastructure spending. "We have deal," he told reporters outside the White House. "I clearly didn't get all I wanted. They gave more than, I think, maybe they were inclined to give in the first place. But this reminds me of the days we used to get an awful lot done up in the United States Congress."Breakdown: The agreement features $579B of spending above expected federal levels and a total $973B of investment over five years - $1.2T if continued over eight years. By sector: Transportation ($312B); Other Infrastructure ($266B); Roads, bridges, major projects ($109B); Power infrastructure ($73B); Passenger and Freight Rail ($66B); Broadband infrastructure ($65B); Water infrastructure ($55B); Public transit ($49B); Resilience ($47B); Airports ($25B); Environmental remediation ($21B); Infrastructure Financing ($20B); Ports & Waterways ($16B); Safety ($11B); Electric buses / transit ($7.5B); EV infrastructure ($7.5B); Western Water Storage ($5B); Reconnecting communities ($1B).The plan wouldn't raise taxes on middle-income Americans, nor reverse the business tax cuts passed during the Trump administration. Funding would be secured by repurposing existing federal funds, public-private partnerships and revenue collected from enhanced enforcement at the IRS. Other revenue raisers include sales from the strategic petroleum reserve and wireless-spectrum auction sales. Passage is by no means assured: The bill excludes spending on education, health care and poverty issues, which Democrats will try to push through in a separate budget maneuver later this summer. Passing two complex measures through different procedures at the same time will present a difficult challenge and the current bill was only reached between moderate senators from each party. Biden has also repeatedly stated he won't sign any physical infrastructure legislation without a human infrastructure bill like the American Families Plan. Don't forget threats of tight supplies for some materials, and the companies that pave roads and build bridges appear to have made few plans to meet those needs. (60 comments)

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Top News 'We have a deal' Shutterstock Cyclical stocks like Caterpillar (CAT) and Vulcan Materials (VMC) took the lead in afternoon trading on Thursday after President Biden announced a bipartisan deal on infrastructure spending. "We have deal," he told reporters outside the White House. "I clearly didn't get all I wanted. They gave more than, I think, maybe they were inclined to give in the first place. But this reminds me of the days we used to get an awful lot done up in the United States Congress." Breakdown: The agreement features $579B of spending above expected federal levels and a total $973B of investment over five years - $1.2T if continued over eight years. By sector: Transportation ($312B); Other Infrastructure ($266B); Roads, bridges, major projects ($109B); Power infrastructure ($73B); Passenger and Freight Rail ($66B); Broadband infrastructure ($65B); Water infrastructure ($55B); Public transit ($49B); Resilience ($47B); Airports ($25B); Environmental remediation ($21B); Infrastructure Financing ($20B); Ports & Waterways ($16B); Safety ($11B); Electric buses / transit ($7.5B); EV infrastructure ($7.5B); Western Water Storage ($5B); Reconnecting communities ($1B). The plan wouldn't raise taxes on middle-income Americans, nor reverse the business tax cuts passed during the Trump administration. Funding would be secured by repurposing existing federal funds, public-private partnerships and revenue collected from enhanced enforcement at the IRS. Other revenue raisers include sales from the strategic petroleum reserve and wireless-spectrum auction sales. Passage is by no means assured: The bill excludes spending on education, health care and poverty issues, which Democrats will try to push through in a separate budget maneuver later this summer. Passing two complex measures through different procedures at the same time will present a difficult challenge and the current bill was only reached between moderate senators from each party. Biden has also repeatedly stated he won't sign any physical infrastructure legislation without a human infrastructure bill like the American Families Plan. Don't forget threats of tight supplies for some materials, and the companies that pave roads and build bridges appear to have made few plans to meet those needs. (60 comments)       Stocks Key inflation report Dow futures retained their edge overnight as President Biden announced an agreement on a bipartisan infrastructure plan. Contracts linked to the index climbed 0.3%, though the other averages weren't far behind, with the S&P 500 inching up 0.1% and Nasdaq ahead by 0.2%. The upward movement is a stark change from last week's FOMC induced selloff, with all three indexes heading into today's session up 2.4% for the week. Stressed out? Not really. Bank shares are on the march higher after the Fed announced that the biggest U.S. lenders could easily withstand a severe recession. According to the Dodd-Frank Act Stress Test results, the 23 financial institutions that participated "would experience substantial losses under the severely adverse scenario but would remain well above their minimum risk-based requirements and could continue lending to businesses and households." That means big payouts like dividends and stock buybacks could be on their way, with announcements coming as soon as Monday. Investors this morning will also be watching the latest figures on personal consumption expenditures. The number is the Fed's preferred measurement for inflation as it captures changes in consumer behavior and has a broader scope than the consumer price index. The Y/Y number for May will also be the last reading that will factor in the base-effects from the depth of the pandemic, so pay more attention to the monthly figure. It's expected to slow to 0.6% in May, from 0.7% in April, excluding food and energy prices. Go deeper: COVID concerns are lingering in the background due to the spread of the highly contagious Delta variant. "Six hundred thousand-plus Americans have died, and with this Delta variant you know there's going to be others as well. You know it's going to happen. We've got to get young people vaccinated," Biden said during a trip to North Carolina. "The data couldn't be clearer: If you're vaccinated, you're safe. You are still at risk of getting seriously ill or dying if you in fact have not been vaccinated, that's just the fact."       Sponsored By Robinhood Commission-Free Crypto Trades with Robinhood Crypto is one of the hottest investment trends of the moment and continues to gain popularity with investors who can withstand some risk to capitalize on this emerging asset class. Looking to learn more about investing in Crypto and decide if it's the right fit for your portfolio? Download the Robinhood app to get the basics, and start trading Bitcoin, Ethereum, Dogecoin, Litecoin and more Cryptocurrencies commission-free. Other fees may apply. Open an account today. Outlook Tax edge Only weeks after ProPublica leaked the tax returns of the wealthiest Americans, the nonprofit news organization is out with a fresh breakdown on how PayPal (NASDAQ:PYPL) co-founder Peter Thiel "turned a retirement account for the middle class into a $5B tax-free piggy bank." Theil has been a vocal opponent of higher taxes, as well as a major funder of the Club for Growth Action Fund, a heavyweight anti-tax political action committee. According to the publication, he apparently took his opposition one step further, using a Roth IRA account to accumulate a massive amount of wealth. Backdrop: After Congress created Roth IRAs in 1997, the Clinton administration blocked higher-income folks (singles earning more than $110,000) from opening the funds and capped contributions at $2,000 a year. Theil, who was just starting out at the time, was seemingly eligible to contribute under that amount. Annual contributions to Roth IRAs are now capped at $6,000 (or $7,000 for those who are 50 or older), but there are still many ways to make these accounts grow larger. Thiel bought 1.7M shares of PayPal in 1999 for $0.001 per share, or $1,700. Within a year, the value of his Roth jumped to $3.8M, and turned into over $30M when eBay (EBAY) bought out PayPal for $19 a share in 2002. Since then he has made highly successful investments in Facebook (FB), Yelp (YELP) and Palantir (PLTR), and by 2019, his Roth held $5B "spread across 96 sub-accounts." The gains from all those sales are tax-free and Thiel could pull out the money in six years when he turns 59½. High-income taxpayers can also use Roth conversions, otherwise known as a "backdoor Roth," where money is moved from a traditional IRA to a Roth after paying a one-time income tax on the transferred assets. Need of reform? Some are skeptical about the Biden administration's new goals of funding infrastructure plans and other initiatives via taxing the rich. More often than not, it is the ultra-wealthy who could afford the lawyers or the elaborate schemes in order to avoid paying taxes. The report from ProPublica in early June showed that the 25 richest Americans, including Warren Buffett, Jeff Bezos and Elon Musk, paid a true tax rate of only 3.4% between 2014 and 2018 (compared to the 14% in federal taxes paid by the median American household). "Billionaires are going to have to pay their fair share, every year," said Senator Ron Wyden (D-OR), who chairs the tax-writing finance committee. (12 comments)

     

SPACs

Something buzzing

Confirming reports from earlier in the week, BuzzFeed has inked a deal to become a publicly listed company by combining with SPAC 890 Fifth Avenue Partners (ENFA). That includes a plan to acquire youth-focused media company Complex Networks, taking BuzzFeed's implied valuation to $1.5B. After an expected deal closing in the fourth quarter, BuzzFeed is seeking to trade on the Nasdaq under ticker symbol "BZFD."

Many are watching: Digital media companies Bustle, Group Nine, Vice, Vox Media have all recently discussed going public via SPAC, and will be watching how Buzzfeed's deal plays out to gauge investor appetite. Many of the firms feel they can grow in a post-pandemic world as advertisers shell out the big bucks on digital properties and less on traditional media like television. Jonah Peretti, co-founder and CEO of BuzzFeed, wants the company to be a "consolidator in the media space" and a SPAC IPO would provide the vehicle to achieve that goal.

Total unique visitors and time spent among millennials and Gen Z are said to trounce the competition, according to Buzzfeed's investor presentation. The company generated $166M selling its own content and $196M on advertising in 2020, as well as starting an e-commerce business. Commenting on a slide in valuation from 2016, when BuzzFeed had fetched a potential valuation of $1.7B, Peretti suggested that the previous market estimate may have been "influenced by the perceptions of the time."

Quote: "We looked at many different media businesses but none had the kind of brands, digital assets or business model that BuzzFeed does and which we believe can achieve the kind of meaningful growth and returns for our investors," said Adam Rothstein of 890 Fifth Avenue Partners. "Jonah Peretti and team have built an incredible business. They are resilient, smart, and innovative which will be important as we move ahead."

     

Consumer

Lego goes green

Privately-owned Lego plans to begin selling bricks made from recycled plastic bottles after finding a suitable alternative to acrylonitrile butadiene styrene - a virgin plastic made from crude oil. The company expects to bring the prototype 2x2 and 2x4 bricks to market in 18 to 24 months, but will continue to test the material for different colors and brick types. Under the new system, a one-liter plastic bottle would yield an average of ten standard Lego bricks.

Backdrop: Almost 150 engineers and scientists have been testing different plant-based and recycled materials over the past six years. Since 2018, the Danish company has made pieces like plants and trees from bio-polyethylene that comes from sugarcane, but suitable substances for harder bricks have been more challenging. Last year, Lego said it would invest $400M over three years to research and develop sustainable materials, aiming to replace its current plastic bricks by the end of the decade.

"We are super excited about this breakthrough," said Tim Brooks, Lego's vice president of environmental responsibility. "We want our products to have a positive impact on the planet, not just with the play they inspire, but also with the materials we use."

Footprint: Lego makes between 110B-120B plastic pieces per year using around 100K tons of plastic in its products. Its new patent would use safely-sourced bottles in the U.S. and Europe, while adding an additive to strengthen the bricks and increases their durability. The movement is spreading... Rival toy maker Mattel (NASDAQ:MAT), best known for its Barbie dolls, has already announced plans to manufacture its toys from recycled, recyclable or bio-mass plastics from 2030.

     

Today's Markets

In Asia, Japan +0.7%. Hong Kong +1.4%. China +1.2%. India +0.5%.
In Europe, at midday, London flat. Paris -0.2%. Frankfurt -0.2%.
Futures at 6:20, Dow +0.3%. S&P +0.1%. Nasdaq +0.2%. Crude -0.4% at $73.03. Gold +0.4% at $1783. Bitcoin +1.8% at $34023.
Ten-year Treasury Yield unchanged at 1.49%

Today's Economic Calendar

8:30 Personal Income and Outlays
10:00 Consumer Sentiment
11:35 Fed's Mester Speech
1:00 PM Fed's Rosengren "Financial Stability"
1:00 PM Baker-Hughes Rig Count
3:00 PM Fed's Williams Speech

Thursday's Key Earnings

BlackBerry (NYSE:BB) -3.5% AH as revenues fell by double digits.
Darden Restaurants (NYSE:DRI) +3.3% as strong traffic overshadowed inflation.
FedEx (NYSE:FDX) -4.4% AH guiding for capex of $7.2B.
Nike (NYSE:NKE) +14% AH deflating China concerns with earnings smasher.
Rite Aid (NYSE:RAD) -14.5% on weaker-than-expected revenues.

Companies reporting earnings today »

What else is happening...

First Solar (NASDAQ:FSLR) takes off after Chinese solar product ban.

Tesla (NASDAQ:TSLA) set to open Supercharger network to other automakers.

SpaceX won't spin off Starlink (STRLK) for "at least a few years."

Ride-hailing firm Didi (DIDI) plans to raise about $4B in IPO.

Google (NASDAQ:GOOGL) delays cookie removal to late 2023.

Microsoft (NASDAQ:MSFT) finally unveils Windows 11 operating system.

Pfizer (NYSE:PFE) halts anti-smoking drug after finding carcinogen.

Hershey (NYSE:HSY) could be a takeover target of Berkshire Hathaway.

FTC Chair Khan said to appoint new antitrust chief.

Shareholders oust Toshiba (OTCPK:TOSBF) board chairman over alleged collusion.

Twilio (NYSE:TWLO), Asana (NYSE:ASAN) first to dual list on Long-Term Stock Exchange.

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