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West Wing Mind Meld — The White House thinks a lot of economic pundits (MM included) are getting the $4 trillion in additional proposed spending wrong when it comes to deficits and inflation. Officials note that much of the spending is spread out over years and is aimed at boosting economic capacity and productivity (better child care, stronger infrastructure, green energy and the like) in ways that will not be inflationary.
It’s a worthy argument but still a tough sell in Congress as the economy is set to continue to heat up with the April jobs report on Friday expected to show a gain of close to 1 million jobs as the service sector continues to bounce back from the Covid crash. The White House certainly has a friendly audience at the Fed, where officials also believe that any inflationary pressure this spring and summer will pass once supply catches up to pent up demand.
This is the essential tension of the Biden agenda. Officials in the White House and progressives outside want to see fundamental structural changes to the nature of the U.S. economy, especially when it comes to child care, education and the environment. They don’t really have the margins in Congress to jam it through and the economy starting to cook doesn’t really help the case.
Yellen on Biden’s plans — Treasury Secretary Janet Yellen on NBC’s “Meet the Press” with Chuck Todd: “[W]e think the plans are extremely important and necessary to invest in our economy so that we can be competitive and have families and children succeed, invest in infrastructure, in R&D, and the things that shore up middle class prosperity …
“The president has pledged that no family earning under $400,000 will pay a penny more in taxes. And we’ve been assiduous in sticking to that pledge. So, the other part of paying for this comes from raising taxes back to the level they were at, 39.6 percent before 2017 for families making over $400,000.
Smaller deal possible — Via our Myah Ward: “Sen. Bill Cassidy said Republicans and Democrats are ‘a lot closer than you might think’ on a bipartisan path for … Biden’s infrastructure plan, if the plan fits into a traditional definition of infrastructure. …
“Cassidy is part of the so-called Gang of 10 Republican senators working to reach compromise on infrastructure. There’s also a group of 10 Democrats working to find common ground, but the cohorts are trillions of dollars apart — mainly because Republicans want infrastructure to be more narrowly defined. And Republicans don’t like the $2 trillion price tag of Biden’s full plan.”
GOOD MONDAY MORNING — Hey the Yankees are back at .500! Watch out world! Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.
President Biden visits Yorktown and Norfolk, Va. on Monday as part of the “Getting America Back on Track Tour” … Biden visits Lake Charles and New Orleans, La. on Thursday and will speak on the economy on Friday after the jobs report …
House Financial Services has a hearing Thursday at noon with SEC Chairman Gary Gensler and others on the meme-stock craze … Jobs report on Friday at 8:30 a.m. expected to show a gain of 965K with unemployment down to 5.7 percent from 6.0 percent and wages flat.
WARREN PRESSURES GENSLER — Our Zachary Warmbrodt: “Sen. Elizabeth Warren in January praised Gary Gensler … Biden’s nominee to lead the [SEC] as a ‘tenacious’ Wall Street regulator. Now, after a turbulent first two weeks on the job for Gensler, Warren and her allies are sending a new message: Do better, Gary.
“The honeymoon between Gensler and his long-time champions on the left came to a stunning end in recent days after he rattled progressives by naming a veteran corporate defense lawyer, Alex Oh, to lead the agency’s policing of financial wrongdoing. In a twist, Oh abruptly resigned less than a week later after a federal judge reprimanded her and others defending ExxonMobil Corp. in a lawsuit brought by Indonesian villagers.”
MEME STOCK HEARING PREP — Compass Point’s Isaac Boltansky: “The meme stock phenomena will continue to drive headlines and Congressional interest …
[B]ut we believe sweeping action is unlikely. Within this vein, we can envision modest changes relating to short selling transparency, options suitability, a more granular disclosure requirement for Payment for Order Flow, and a move to T+1 in due time. We remain bearish, however, on efforts to either end or materially alter Payment for Order Flow.”
BLOW-OUT EARNINGS SUGGEST MARKET HAS ROOM TO RUN — Reuters’ Caroline Valetkevitch: “U.S. companies are leaping above expectations on first-quarter earnings, giving investors stronger confirmation that profit growth will be able to support the market this year. A big piece of that growth is coming once again from technology and growth companies, which suggests greater durability in companies that underperformed more economically focused value names for months.
“Earnings are rebounding from last year’s pandemic-fueled lows. With results in from more than half of the S&P 500 companies, earnings are now expected to have risen 46 percent in the first quarter from the previous year, compared with forecasts of 24 percent growth at the start of the month, according to IBES data from Refinitiv.”
AMERICANS JUST CAN’T GET ENOUGH OF THE STOCK MARKET — WSJ’s Gunjan Banerji: “Americans are all in on the stock market. Individual investors are holding more stocks than ever before as major indexes climb to fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly buying on small dips in the market.
“Stockholdings among U.S. households increased to 41 percent of their total financial assets in April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve data going back to 1952 that includes 401(k) retirement accounts. JPMorgan’s Nikolaos Panigirtzoglou, who analyzed the data, attributes the elevated allocations to appreciating share prices alongside stock purchases.”
INVESTORS TIPTOE INTO MAY, DIALING BACK EMERGING-MARKET BULL CASE — Bloomberg’s Netty Idayu Ismail, Lilian Karunungan and Sydney Maki: “Emerging-market investors head into the first week of May with as many reasons to be gloomy as cheerful. For all the support emanating from U.S. stimulus plans, dovish central banks and rising commodity prices, worries over India’s deepening Covid-19 crisis, escalating U.S.-Russia tensions and China’s Huarong debt saga may give buyers pause.
“Traders have become less bullish about the outlook for developing nations amid increasing inflation concerns, and most who sought refuge in cash aren’t ready to put it to work, according to a survey by HSBC Holdings Plc.”
FIVE TECH GIANTS JUST KEEP GROWING — WSJ: “If the pandemic had never happened, the tech industry’s clout likely would have risen over the past year. But the economic effects of Covid-19 have catapulted the tech titans to heights few might have imagined possible a year ago.
“The past week of quarterly financial results from Apple, Microsoft Corp., Amazon.com Inc., Facebook Inc., and Google-parent Alphabet Inc. put that dominance on vivid display. Each of these companies — already juggernauts pre-pandemic — recorded revenue growth near or above its fastest pace in years.
POWELL’S HIGH-STAKES BET: MORE JOBS BUT ONLY MILD INFLATION — AP’s Christopher Rugaber: “With employers hiring, consumers spending and companies raising some prices, Federal Reserve Chair Jerome Powell is embarking on a high-stakes gamble.
“Powell’s bet is that the Fed can keep rates ultra-low even as the U.S. economic recovery kicks into high gear — and that it won’t have to quickly raise rates to stop runaway inflation. It’s just the kind of gamble that in the past led some of Powell’s predecessors to miscalculate and inadvertently derail the economy.”
COVID SAVING STOCKPILE COULD ACCELERATE ECONOMY (IF CONSUMERS SPEND IT) — WSJ’s Paul Hannon: “Households in wealthy countries have amassed an unprecedented pile of savings to spend as parts of the global economy thaw after a year in suspended animation. But it isn’t clear whether consumers will seize that opportunity with enthusiasm.
“If they hold back, the recovery will be less rapid than it could be. Economists warn that predicting how much households will spend is fraught with difficulty, given that there are few precedents for such a large buildup of savings over such a short period.”
YELLEN: BIDEN’S PHASED-IN SPENDING PLAN WON’T FUEL INFLATION — AP’s Marcy Gordon: “President Joe Biden’s massive proposed spending on infrastructure, families and education will not fuel inflation because the plans would be phased in gradually over 10 years, Treasury Secretary Janet Yellen said Sunday.
“New economic reports have portrayed a surging recovery from the recession unleashed by the coronavirus pandemic. Americans’ incomes soared in March by the most on record, boosted by $1,400 federal stimulus checks, and the economy expanded at a vigorous annual rate of 6.4 percent in the first three months of the year, leading to concern over inflationary pressures.”
BUFFETT TOUTS ECONOMY’S UNEXPECTED STRENGHT AS BERKSHIRE REBOUNDS — Reuters’ John Mccrank and Jonathan Stempel: “Warren Buffett said on Saturday that Berkshire Hathaway Inc. is being lifted by a U.S. economy faring far better than he predicted early in the coronavirus pandemic, though investor euphoria is making it hard to deploy cash.
“Speaking at Berkshire’s annual meeting, Buffett said the economy has been ‘resurrected in an extraordinarily effective way’ by monetary stimulus from the Federal Reserve and fiscal stimulus from the U.S. Congress. ‘It did the job,’ Buffett said. ‘This economy, right now, 85 percent of it is running in super high gear.’”
Buffett also commented on SPACs, saying they make Berkshire less competitive — Bloomberg’s Katherine Chiglinsky: “Warren Buffett warned investors that Berkshire Hathaway Inc. might not have much luck on striking deals amid the SPAC boom. ‘It’s a killer,’ Buffett said about the influence of special purpose acquisition companies on Berkshire’s ability to find businesses to buy.
“‘That won’t go on forever, but it’s where the money is now and Wall Street goes where the money is.’ Buffett, 90, acknowledged the pressure from SPACs just as Berkshire reported Saturday that it had a near-record pile of cash at the end of March with $145.4 billion in funds.”