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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)


Death of Doge?

Shares of the canine-themed coin jumped 11% on Monday, after Elon Musk signaled his support—or appeared to at least.

But buyer beware, there's a problem. And it goes against nearly every financial expert’s investment thesis: cryptocurrency is too volatile to be money.

That’s why smart money is on hard asset classes like art:

  • Contemporary art prices rose 14%/year from 1995–2020

  • 174% outperformance vs S&P 500 returns over the same period

  • 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.

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'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:DISonline 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.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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