Biden’s Bubble Trouble

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Quick Fix

Biden’s Bubble Trouble — I write here this morning about all the bubbles inflating throughout the financial system and the risks to the Biden economy should a bunch of them burst at the same time.

“Giant bubbles are once again inflating all over the financial world — creating a potential problem for Washington in the coming months. From meme stocks to cryptocurrencies, tech stocks and the rage for ‘Special Purpose Acquisition Companies,’ or SPACs, risks are clearly rising.

“Wall Street pros and Washington policymakers know that some or all of these bubbles could explode in spectacular ways. But nobody really knows what to do about it. The Covid-racked economy still needs infusions of stimulus cash to keep millions of Americans afloat, and around $2 trillion in additional aid is likely to clear Congress in the coming weeks.

“The Federal Reserve also continues to press its foot firmly on the gas, shrugging off worries in the bond market that inflation could pop higher later this year when vaccines start to unlock the full power of the U.S. economy. Higher market-based interest rates, in turn, could pop some of those bubbles that inflated thanks to rock-bottom borrowing costs.

It’s a bizarre environment that’s confounding even the most seasoned economists and investors: an unusual mix of sentiment seen in 1999, just before the dot-com bust, the period a decade ago after the 2008-09 financial crisis, and the early years of the roaring 20s after the pandemic a century ago that concluded with the crash of 1929.

The SPAC explosion — Via Joseph Brusuelas, chief economist at consulting firm RSM US: “I’m more concerned about the bursting of bubbles in cyber assets, gold and SPACs … I mean Shaq has a SPAC. What could go wrong?”

Speaking of SPACs — NYT’s Steven Kurutz: “In simpler times, famous-people-turned-entrepreneurs bought wineries or invested in car dealerships — or simply created multi-billion-dollar lifestyle companies on the strength of their family brand.

“But in the pandemic economy, there’s a new way for the rich and recognized to flex their status and wealth: through a SPAC. (That’s a ‘special purpose acquisition company,’ but more on that later.) Jay-Z is involved with one. Shaquille O’Neal has one. Ciara Wilson sits on the board of one, as does Serena Williams.”

GOOD MONDAY MORNING — Welcome to March! Baseball is being played! Covid numbers are (for now) dropping. Hope is real. Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.

Driving the Day

President Biden “will participate in a virtual bilateral meeting with President Andrés Manuel López Obrador of Mexico to discuss cooperation on migration, joint development efforts in Southern Mexico and Central America, COVID-19 recovery, and economic cooperation” … ISM manufacturing at 10:00 a.m. expected to be largely unchanged at 58.6 …

ALSO THIS WEEK — Senate Banking on Tuesday at 10 a.m. holds a hearing on the nominations of Gary Gensler to be a member of the Securities and Exchange Commission (and Chair) and Rohit Chopra to be director of the CFPB … February jobs report on Friday at 8:30 a.m. expected to show a gain of 150K unemployment at 6.4 percent and wages up 0.2 percent

FIRST LOOK: ASA BACKS GENSLER — Via American Securities Association statement out this morning: “Mr. Gensler will be a strong, independent voice for America’s working families, retirees, and savers who invest in our markets for a better future,” said ASA CEO Chris Iacovella.”

HEARING PREP — Compass Isaac Boltansky on the Senate Banking nominations hearing: “Nomination hearings generally offer little more than a generous serving of noun/verb gumbo and we doubt this hearing will break with that tradition. Gensler will face a bevy of questions regarding the GameStop/Robinhood saga, but there is effectively no utility in contouring a potential policy path in this forum.

“Chopra will face questions regarding his calls for more aggressive enforcement as an FTC Commissioner and what that portends for his time atop the CFPB, but the Senate previously confirmed him by a voice vote and there are no viable concerns regarding his qualifications for this posting.”

Cap Alpha’s Ian Katz: “[F]rom tone and emphasis we do hope to get some glimpses into the nominees’ priorities. Gensler will have to field a lot of questions about the GameStop/Robinhood saga, and we hope for some thoughts about how he views payment for order flow, brokerage capital requirements, settlement times and short-selling. But we don’t expect specific recommendations from him.”

BIDEN PUSHES SENATE ON COVID BILL — Our Ben Leonard: “President Joe Biden … called for the Senate to quickly pass his $1.9 trillion coronavirus relief package, which the House approved early Saturday morning. … Biden’s remarks — which lasted just over a minute — came hours after the House passed the package …

“The Senate is set to tackle the bill [this] week after the Senate parliamentarian dealt Democrats a major blow Thursday, ruling a $15 minimum wage couldn’t be included in the reconciliation process … Many Republicans have argued the bill is too bloated and is full of overly partisan items. America has already seen more than 500,000 coronavirus deaths during the pandemic.”

Markets

INVESTORS WORRY THE FED’S FAST DRIVING MEANS IT’LL HAVE TO HIT THE BRAKES — WSJ’s James Mackintosh: “Here are two things that are both true: A stronger economy is generally good for stocks, and a stronger economy means higher Treasury yields. Students of logic don’t have to progress far in their studies to realize that higher Treasury yields are not, therefore, necessarily good for stocks, and if they missed the class they need do no more than glance at last week’s markets.”

YELLEN’S ENCORE: LENDING ECONOMIC HEFT TO BIDEN’S VIRUS PLAN — AP’s Josh Boak: “On a cold, gray February afternoon, Treasury Secretary Janet Yellen stepped out of the West Wing wrapped in a puffy black parka and clutching a folder of documents, seemingly oblivious to the Washington custom of having an aide schlep the paperwork. Viewed as an outsider to partisan politics, she now has a place in President Joe Biden’s inner sanctum, a Ph.D. economist who does the reading, knows the numbers and treats her staff as peers rather than underlings.

“Yellen, entourage in tow, had been at the White House to strategize about how to push through Biden’s proposed $1.9 trillion coronavirus relief plan -- a package that could determine how quickly the U.S. economy heals, how the Democrats fare in the midterm elections and just how much Americans can trust the government to solve the nation’s toughest problems.”

WALMART LURES GOLDMAN BANKERS IN BID TO FIGHT WALL STREET — Bloomberg’s Sridhar Natarajan: “Walmart Inc. has lured a pair of senior Goldman Sachs bankers to help lead a new fintech startup as the retail giant muscles into the banking business. Omer Ismail, the head of Goldman’s consumer bank, is making a surprise exit to the fintech, according to people with knowledge of the matter.

“The world’s largest retailer made a splash last month after disclosing plans to offer financial services with an independent venture in a tie-up with investment firm Ribbit Capital without offering much detail.”

BOND-MARKET TUMULT PUTS ‘LOWER FOR LONGER’ IN THE CROSSHAIRS — WSJ’s Julia-Ambra Verlaine and Sam Goldfarb: “February’s government-bond rout has rattled one of the foundations of the past year’s powerful stock-market rally: investor certainty that ultralow long-term interest rates are here to stay.

“A wave of selling during the past two weeks drove the yield on the benchmark 10-year Treasury note, which helps set borrowing costs on everything from corporate debt to mortgages, to above 1.5 percent, its highest level since the pandemic began and up from 0.7 percent in October.”

Fly Around

BUFFET UPBEAT ON U.S. AND BERKSHIRE, BUYS BACK STOCK — Reuters’ Jonathan Stempel: “Warren Buffett’s enthusiasm for the future of America and his company Berkshire Hathaway Inc has not been dimmed by the coronavirus pandemic. Buffett used his annual letter to investors to assure he and his successors would be careful stewards of their money at Berkshire, where ‘the passage of time’ and ‘an inner calm’ would help serve them well.

“Despite the disappearance last year of more than 31,000 jobs from Berkshire’s workforce, Buffett retained his trademark optimism, buying back a record $24.7 billion of its stock in 2020 in a sign he considers it undervalued.”

BIDEN TEAM READIES WIDER ECONOMIC PACKAGE AFTER VIRUS RELIEF — AP’s Kevin Freking, Hope Yen and Josh Boak: “Looking beyond the $1.9 trillion COVID relief bill, President Joe Biden and lawmakers are laying the groundwork for another top legislative priority — a long-sought boost to the nation’s roads, bridges and other infrastructure that could run into Republican resistance to a hefty price tag.

“Biden and his team have begun discussions on the possible outlines of an infrastructure package with members of Congress, particularly mindful that Texas’ recent struggles with power outages and water shortages after a brutal winter storm present an opportunity for agreement on sustained spending on infrastructure.”

TRANSITIONS — Per release: “Karolina Arias of [the] Senate Banking Committee and Obama-era OCC is becoming a partner at Federal Hall Policy Advisors. She was most recently Democratic Staff Director w/ the Subcommittee for Securities, Insurance and Investment. She also served as top financial services advisor to Sen. Chris Van Hollen (D-Md.)” …

The Commerce Department announced a long list of new top appointees, including Mike Harney as chief of staff, Cynthia Aragon as White House liaison and Gabriela Castillo as director of public affairs. The full list

Ross Branson is now chief of staff for Rep. Debbie Lesko (R-Ariz.). He most recently was SVP in the office of congressional and intergovernmental affairs at the Export-Import Bank. …

… Brent McIntosh is now adjunct senior fellow for international economics and finance at the Council on Foreign Relations. He most recently was undersecretary of the Treasury for international affairs. …