Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 23 Jul 2021, 11:18 AM


Wall Street Breakfast: Another Infrastructure Proposal

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At a G7 summit over the weekend, President Biden pressed world leaders to take concrete steps to counter China's rising influence and put a heavy focus on the path toward decarbonization. The result? A global infrastructure project called "Build Back Better for the World" that would kill two birds with one stone. It calls for spending $100B per year to help developing nations' climate change transitions, while sticking to climate standards and labor practices.

Bigger picture: The plan would specifically create a "higher quality" alternative to China's Belt and Road Initiative, which has been criticized for its leverage in creating political goodwill, massive debt and a way to spread Beijing's influence. The new G7 plan, dubbed by some as the "Green Belt and Road" or the "Green Marshall Plan," would be funded by multilateral development banks like the IMF and World Bank, as well as the private sector (think wind farms, railways and other low-carbon projects). The Biden administration also plans to work with Congress to increase U.S. contributions to the G7's Development Financing Toolkit.

Quote: "As the G7, we are united in our vision for a cleaner, greener world. A solution to the problems of climate change," said U.K. Prime Minister Boris Johnson, who chaired the conference. "I think that is what the peoples of our countries now want us to focus on... and that we're building back better together."

Response from China: "Those fanning confrontation are definitely on an ill-advised path... Ganging up, pursuing bloc politics and forming small cliques are unpopular and doomed to fail," Chinese foreign ministry spokesman Wang Wenbin declared. "The days when global decisions were dictated by a small group of countries are long gone," added a spokesman for the Chinese embassy in London. "We always believe that countries, big or small, strong or weak, poor or rich, are equals, and that world affairs should be handled through consultation by all countries."

Other headlines at the G7 summit: Leaders vowed to phase out gas and diesel cars and shut down coal plants that do not apply emissions-capturing technology as soon as possible. They also promised to protect 30% of the planet's land and oceans by 2030. On an interesting note, NATO, which includes many G7 nations, are set to agree on a climate action plan today that would make their armed forces carbon-neutral by 2050.

Stocks - Extending gains

Traders are beginning the week with the Fed on their minds as the FOMC meets Tuesday and Wednesday to discuss policy monetary. An accompanying press conference from Jerome Powell is likely to reiterate that recent price increases will be "transitory," though it will be interesting to watch if the concerns will have any effect on the central bank's forecasts. Another area of note is quantitative easing, and if tapering talk even makes it into the conversation.

Bigger picture: Investors have so far shrugged off inflation concerns, with equities ending at highs last week despite the CPI expanding at a blistering 5% Y/Y in May. Stock futures inched higher overnight, with the Dow and S&P 500 up 0.1%, respectively, and the Nasdaq ahead by 0.3%. "Because the S&P 500 Index reached yet another new record high last week, investors will be watching to see if this signals even higher levels near term," added Jim Paulsen, chief investment strategist at the Leuthold Group.

Another post-pandemic milestone was notched before the weekend, with more than 2M people passing through U.S. airport security checkpoints on Friday. That's the first time screenings hit that figure since March 2020 and represents a big turnaround for the travel industry. While still losing money, airlines are recalling employees from voluntary leave and planning to hire small numbers of pilots later this year.

How will the meme trade fare this week? Usual suspects AMC (NYSE:AMC), BlackBerry (NYSE:BB) and GameStop (NYSE:GME) are all up in premarket trade, as well as newcomers Clover Health (NASDAQ:CLOV), Clean Energy Fuels (NASDAQ:CLNE) and GEO Group (NYSE:GEO). While sentiment changes quickly in the sector, WallStreetBets founder Jaime Rogozinski is defending the trade. "I mean what is market manipulation? You have people that are buying and you have people that are selling, right? If you have a fraudulent intent - if somebody goes up there and lies and says oh, BlackBerry has this new hologram cellphone that does whatever and it's a lie, that is market manipulation. But people coming together and saying let's just push this price to the moon and being really transparent and no defrauding taking place, that is absolutely what the market is."

Cryptocurrency - Elon & Bitcoin

Bitcoin (BTC-USD) is on the move again, soaring 10% above $39,000 over the past 24 hours, after Elon Musk confirmed Tesla (TSLA) would resume transactions using the cryptocurrency. The catch? The automaker will only restart customer payments once the crypto "is greener." According to Musk, that will happen "when there's confirmation of reasonable (~50%) clean energy usage by miners with positive future trend."

Backdrop: Tesla disclosed a purchase of $1.5B worth of Bitcoin in February and announced that it would begin accepting the crypto as a payment method for its products. Fast forward to May... Musk expressed concerns over how crypto mining contributes to climate change. While the topic is controversial and under intense scrutiny, Tesla subsequently stopped car purchases via Bitcoin and sold roughly 10% of its holdings. The move helped Tesla reduce its Q1 operating losses by $101M, though Musk said it was "to confirm BTC could be liquidated easily without moving market."

Musk was responding to a comment made by Magda Wierzycka, a fellow South African billionaire and former CEO of financial services firm Sygnia. On a recent podcast called Money Show with Bruce Whitfield, she highlighted Elon's outsized influence on Bitcoin prices, likening his tweets to "price manipulation." Wierzycka even went as far as saying Musk knowingly pumped up prices, then "sold a big part of his exposure at the peak."

Outlook: Last month, Michael Saylor, who heads up business analytics firm MicroStrategy (MSTR), said he met with Elon Musk and some of America's largest Bitcoin miners to spearhead an effort on promoting "energy usage transparency and accelerate sustainability initiatives worldwide." Dubbed the Bitcoin Mining Council, the effort would require participants to publish their renewable energy usage. Some are skeptical, however, with nearly 92% of Bitcoin mined outside the United States, including in countries like China, Russia, Kazakhstan and Iran.

Covid - 1B vaccines

At the weekend G7 summit, world leaders also pledged 1B vaccines to developing countries over the next year, while backing U.S.-led calls for a probe into the origins of the pandemic and pressing China on human right reforms. The jabs would be distributed directly, or through COVAX, the global vaccine buying system backed by the World Health Organization and Gavi, the Vaccine Alliance. The U.S. will donate nearly half of the shots, with 500M doses of Pfizer's (NYSE:PFE) vaccine set to be distributed internationally.

"Our values call on us to do everything that we can to vaccinate the world against COVID-19," President Biden said of the decision. "It's also in America's self-interest. As long as the virus rages elsewhere, there's a risk of new mutations that could threaten our people."

By the numbers: Digging a little deeper into the vaccine figure, G7 officials included pledges that started back in February. So far, the countries have promised 613M truly new doses, according to Bloomberg, including some funded in part by previously announced aid.

Go deeper: In late May, the WHO urged wealthier countries to contribute more to COVAX and requested at least 1B excess doses by the end of 2021. The facility estimates that it will need 11B doses to vaccinate at least 70% of the world's population, but has only shipped around 85M shots to date. Whether to waive vaccine patents, or whether it would increase production, was also a debate at the G7, and a similar dispute has played out across government and business in the U.S.

Global - Change in Israel

It's the end of an era for Israel's longtime leader, Benjamin Netanyahu, who was replaced on Sunday by Naftali Bennett's "change coalition." Netanyahu has been at the helm for a record 12-year run, as well as a 3-year stint in the late 90s, making him the longest-serving Israeli prime minister in history. Also known by his nickname Bibi, Netanyahu has championed a free market economy, security issues and Israel's diplomacy on the international stage, though many parties have increasingly felt isolated by his grip on power, pointing to divisive rhetoric, underhanded political tactics and ongoing corruption trials.

In order to form a ruling coalition, Israel's parliament, or Knesset, requires a simple majority for the 120 available seats. The current "change government" is the most fragile in the country's history, with 60 in favor and 59 opposed (with one abstention). Members of Knesset, otherwise known as MKs, can break ranks over hot-button issues, so this time around, even losing one seat could bring down the entire government. Making the matter worse, the razor-thin coalition is made up of eight parties that span the political spectrum (including an Arab party for the first time), that agree on little beyond their opposition to Netanyahu and another round of elections.

Who is Naftali Bennett? He heads up the right-wing Yamina party and has served as former Minister of Defense, Minister of Education and Minister of Diaspora Affairs (before a rift with Netanyahu). The 49-year-old also served as a commander in the elite IDF Sayeret Matkal and Maglan units, and comes from the tech sector, where he founded and sold anti-fraud software company Cyota for $145M in 2005. He later helped lead cyber software developer Soluto, which was sold for $130M in 2009, and some economists say the experience will help shape his economic policies.

"It gives him a close understanding of the tech world, which is very important for Israel's economy," said Daphna Aviram-Nitzan, Council Director of the Israeli Economic Association. "That means he understands the nation's economic issues from first-hand experience, and that he has a deep understanding of the world of scientists and engineers. That will give him greater strength to push forward on Israel’s economic development."

Fine print: Due to the fragility of the coalition, the "change government" will attempt to avoid delicate issues such as policy toward the Palestinians, and instead focus on domestic concerns. Those include the education system, lowering housing costs and cutting red tape for businesses, as well as a two-year budget that will help stabilize the country's finances following the coronavirus pandemic. Under a rotational deal (if the coalition lasts that long), Bennett will be replaced by alternate prime minister Yair Lapid in 2023, a former television host who founded the Yesh Atid party ("There Is a Future") a decade ago. "The government will work for all the Israeli public - religious, secular, ultra-Orthodox, Arab - without exception, as one," Bennett said in a statement. "We will work together, out of partnership and national responsibility, and I believe we will succeed."

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