The latest news trickling “outside the Beltway” of Washington, D.C., is fantastic. It is also terrible.
The Biden administration, along with Democrats in Congress, are pushing a $3 trillion infrastructure package.
I love this. I hate this. It is a bloated, sprawling proposal with a whole lot of bad politics and bad policy baked in. Laughably short-term payoffs designed to work into the two- or four-year election cycles are guaranteed.
Let’s look at what will gain traction, what won’t, and what this means for us. I’ll leave the politics to you, though. We’re here for a reason, after all, and that is what this means for us as investors.
First off, this whole thing is decades too late. Generations too late, even.
The same was true during the Obama administration, Trump administration, and on and on. Our roads, electrical grid, and water infrastructure have languished for over half a century.
It’s not quite the textbook definition of a political football, but it sure gets punted a lot. Token efforts are made and abandoned time and time again.
As usual, this new iteration is being sold on survey-tested talking points while the money funneled to what a plurality of taxpayers and politicians agree on accounts for a small fraction of the total cost.
What will this particular variation involve? $1 trillion for roads, rails, bridges, cellular networks, universal broadband internet access, domestic semiconductor production, and electric vehicle charging stations.
That other $2 trillion? Initial reporting suggests it would include include free community college, paid family leave, and universal pre-kindergarten.
President Biden’s appeals to going back to a simpler, more gentile bipartisanship in Congress are clearly at odds with this attempt to lump all of these things together. Failure for this kind of omnibus spending package is all but guaranteed.
However, parts of it will go through in some form, and — though I doubt much of anyone would argue that the goals are the rest of it are laudable — a lot will be jettisoned along the way.
Let’s keep this simple and look at it through an investor’s prism by topic.
Roads, rails, and grid updates are absolutely necessary but hard to profit from as investors in a meaningful way.
The companies that can and will secure any government contracts are massive multinationals. Even a surge in government spending that flows to them will be fragmented and rerouted to subcontractors in a way that won’t meaningfully push stock prices.
This kind of traditional infrastructure can and should be a moneymaker long term, but it won’t be through this bill, as large as it would be, especially not with how it is structured.
We can functionally ignore the education, pre-K, and paid family leave too. Again, all are laudable, but none will be implemented on a national level much to my chagrin.
Studies have shown incredible payoffs for all of them. The benefits of higher education subsidies in particular are well documented, with the consensus being that a dollar spent today on higher education funding translating to $2–$3 in extra lifetime tax revenue from higher wages. It’s a shame that isn’t a priority.
None of it will pay off during this administration, or the next. Ad infinitum. This isn’t a hill anyone on Capitol Hill will die on.
We can and should assume that any short-term political payoff will be forgotten by 2024. I guarantee all the politicians pushing this are counting on it.
5G has fantastic profit potential, along with green energy, but both are already moneymakers for the private sector.
That leaves a couple options for investors that will be meaningfully impacted by this new proposed legislation.
Two clear advantages come from this bill: The intersection of grid improvements with electrical vehicle charging stations and support for semiconductor production.
The first is a bit complex, but not terribly so. EVs aren’t just cars with a ton of batteries in them. They are everything that doesn’t depend on burning fuel to push pistons and turn camshafts in engines.
Grid improvements that bolster EV use through charging stations are far more palatable when they have a (geographically speaking) small footprint and generate increased capacity with the least amount of government spending possible.
This isn’t limited just to just electricity generation and transmission. Plus, these improvements lend themselves well to government-backed loans that can recoup initial capital expenditures through private ventures.
Pilot production plants are already in the works across the globe that fall into this category. Hydrogen production is one of the most promising and already shows incredible value as a way to use excess capacity from green energy production.
This is especially true for the vehicles that keep domestic and global trade moving, account for a massive percentage of economic production, and functionally cannot use batteries as a power source.
That’s carbon-free energy at little cost to the government — which Democrats can count on to placate their base — and revenue-neutral (albeit over time) projects that can bring Republicans on board through private enterprise.
We also should look at semiconductor production. This too is not simple, but the payoff is real and subsidies will work exceedingly well for both the most basic and advanced types. Again, this can be revenue-neutral or revenue-positive for short-term government subsidies or loans over time as societal and business interests align.
Articles abound about shortages for car manufacturers. The same goes for the high-end semiconductors we’re increasingly reliant upon for everything from consumer goods (think smartphones) to big tech applications (think advanced AI and exponential data growth trickling down from Big Tech to the most mundane of businesses, like logistics).
It’s been a long time since Silicon Valley actually made anything out of silicon. It may never again, but that production will become increasingly domestic as the bipartisan effort to move away from Chinese and Asian production gathers steam.
This is something we should track closely as investors. It can and will create windfalls for smaller companies. It is one we’re already well-positioned for, too, with Jimmy Mengel covering both alternative, carbon-free power for transportation and the next generation of semiconductor chip designs.
We’ll see where all this goes, but don’t count on this infrastructure bill to go through as a giant omnibus bill. It’s too much in some ways, not enough in others — as well as too late in some and too quick in others.
There are diamonds in the rough, though. They serve the interests of Democrats and Republicans alike, and how they can be funded is far more palatable compared with the rest of the mess thrown into this $3 trillion monstrosity.
