DC Noise Means Ripples are Amplifying

Welcome to the weekend – I’ll sum up the happenings in D.C. and look at some ripples that are picking up speed.

D.C. Update

It was a busy week – busy in D.C. means lots of ripples, and some of those are starting to or soon will be amplified.

Let’s start with the inauguration. It went off without a hitch. Joe Biden is now the President. There was a smooth transition of power. There were no armed insurrections. The Republic feels intact (even if a little bruised).

As anticipated, the president tried to immediately jump start his agenda by issuing a flurry of executive orders on his first day in the White House. I had predicted a dozen and was wrong. He issued 17 executive orders and actions, a record for a first day in office.

By the end of the week Biden had signed a total of 29 executive orders and other actions having far reaching consequences – from climate policy to a mandated $15 minimum wage for federal employees.

As always, such activity produces a lot of noise and a lot of ripples.

Noise, Noise, and More Noise

Not to be outdone in the ripples and noise category, the Senate and House threw in their two cents.

First, the Senate control changed hands. Mitch McConnell relinquished his majority leader post to Chuck Schumer. My sources tell me that during the transition McConnell pushed Schumer to promise to leave the filibuster alone. In the interest of bipartisanship, Schumer refused to make such a promise. The Senate is starting off a little scratchy.

Meanwhile, the House of Representatives never fails to disappoint. We can always count on both sides of its aisles to create DC Volatility. Over the next few weeks I give you – DUELING IMPEACHMENTS!

Nancy Pelosi vowed to deliver articles of impeachment against former president Trump as soon as Monday. The basis for impeaching a former president is tenuous at best.

To balance out the impeachment seesaw, newly-elected Rep. Marjorie Taylor Greene (R-Ga.) announced on Thursday that she introduced articles of impeachment against … Joe Biden … for his role in the alleged Ukraine scandal involving Hunter Biden.

While fun to watch this is all just NOISE! 

Don’t be distracted.

Let’s Cut Through the Noise and Get Down to Business

On his first day in office Biden made true on his campaign commitment to address environmental issues by signing executive orders to:

  • Re-enter the Paris Climate Accords, which the U.S. will officially rejoin 30 days from inauguration day;
  • Revoke the permit for the Keystone XL pipeline;
  • Reverse Trump’s rollbacks to vehicle emissions standards;
  • Reverse Trump’s decisions to slash the size of several national monuments;
  • Enforce a temporary moratorium on oil and natural gas leases in the Arctic National Wildlife Refuge; and
  • Re-establish a working group on the social costs of greenhouse gasses.

Biden also issued a directive freezing all new regulations put in motion by Trump to give his administration time to evaluate which ones it wants to move forward. He is specifically concerned with regulations “harmful to public health, damaging to the environment, unsupported by the best available science, or otherwise not in the national interest.”

As I’ve argued, this focus on green initiatives will drive metals and oil up!

Biden is going to push through stimulus spending ($1.9 Trillion) and then turn his focus to a minimum $2 Trillion infrastructure spending package (with a green focus).

And he’s got the backing of his incoming Treasury Secretary, Janet Yellen. Bill Griffo in his Power Income piece pointed out some of her quotes from her confirmation hearing:

  • “But right now, with interest rates at historic lows, the smartest thing we can do is act big.”
  • “We should have greater cooperation between the Fed and the Treasury, with both the monetary and fiscal policy working together and supportive. This is a good backdrop for risk sentiment.”

She also played up green energy and infrastructure spending.

Ripples Amplify Other Ripples

As we know, when ripples collide they get weaker, stronger or stay the same. Executive orders and Treasury statements are amplifying ripples.

Stimulus and upcoming infrastructure spending are going to further amplify those ripples.

As I pointed out, the steel market has been on fire, with huge gains in the fourth quarter of 2020.

But Biden has telegraphed his focus on green building, and much of the planned $2 trillion in investment stimulus will go to traditional and green infrastructure initiatives like building and repairing roads and bridges, investing in the automotive sector, and building and upgrading rail networks.

All of those things require the consumption of – MORE STEEL!

I told you I’m keeping an eye on a few steel companies:

  • ArcelorMittal (MT) – based in Luxembourg and one of the world’s leading steel and mining companies.
  • Schnitzer Steel Industries, Inc. (SCHN) – based in Oregon and a leading manufacturer of recycled metal products.
  • Olympic Steel, Inc. (ZEUS) – based in Ohio and focused on the sale and distribution of sheet, coil and plate steel and aluminum products.

As anticipated, the recent uptick in prices led to a leveling over the past days, and all of these finished flat or a little low on the week. But I’m looking at longer term earnings prospects, which are positive.

I’m going to add another name to my list that I think will benefit from the ripples coming from DC – Cleveland-Cliffs Inc (CLF).

CLF is an independent U.S. iron ore mining company and is a supplier of iron ore pellets to the North American steel industry from its mines and processing facilities located in Michigan and Minnesota.

Like other steel companies, CLF saw a 140% return over the past year, but focus on the long game.

CLF has competitive advantages – they’ve made investments in their own facilities and made two strategic acquisitions that have helped to solidify its competitive position and make it a leader in steel production in parts of the U.S.

Its acquisition of AK Steel and ArcelorMittal US has given CLF great footing in the expanding automotive segment.

CLF also has an important competitive advantage in the form of its vertical integration and access to high grade pellets and metallics in the US.

While the price has risen of late, this stock is a long way from its past highs.

I love this chart – it’s a wave I’m thinking of riding.

Cutting through the noise for you.

Frank


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