Stocks Soared on Trump’s $1-Trillion Infrastructure Boom. But that Just Evaporated. Now What?

Wall Street will have to go look for another mirage to hype.

During the campaign, President Trump explained that he’d fire up the economy and create jobs by spending $1 trillion on infrastructure. It’s in terrible shape and needs some big spending. It might have been material for rare bipartisan agreement.

The stock market has soared since the election, counting on this $1 trillion in new federal spending and “pricing it in.” Infrastructure stocks were hot. But by the looks of it, some folks are going to end up holding the bag…

Because there is not a trace of this huge spending plan in the 2018 budget blueprint released by the White House on Thursday. Instead, the blueprint slashed the budget of the Department of Transportation by 13% and cut out some existing plans for infrastructure spending.

Yet on February 12 — just days before the first efforts to defund existing infrastructure projects began to seep to the surface — I wondered incredulously if Trump and California “suddenly see eye-to-eye on high-speed rail,” because Trump, still brimming with enthusiasm about infrastructure spending, had told aviation CEOs this encouraging tidbit:

“And we have an obsolete plane system, we have obsolete airports, we have obsolete trains. We have bad roads. We’re going to change all of that, folks. You’re going to be so happy with Trump. I think you already are.”

And when the stock market opened in Japan, a major supplier of train system to the US, this happened… Trump Promises “Fast Trains,” Japan’s Railway Stocks Soar.

Days later, everything changed. In mid-February, the Department of Transportation announced that it would withhold its portion – $647 million – of funding for the Caltrain Electrification project. Caltrain runs 45 miles between San Francisco and San Jose in parallel with the awfully congested Highway 101, straight through Silicon Valley, a stretch that generates 14% of California’s GDP, and where 43% of the venture capital of the US is invested.

The $2 billion project entails buying electric trainsets to replace the diesel trains, installing overhead wire systems, improving tracks, etc. The current diesel trains move 65,000 people a day. After these improvements, it was hoped ridership would rise to 110,000 people a day and relieve some pressure on 101.

Caltrain estimated that the project would create 9,600 jobs in the Bay Area and throughout the US, including at a plant in Salt Lake City that would be built to assemble the new rail cars.

The budget eliminates funding to other transit projects, including Phase 2 of the BART (Bay Area Rapid Transit) Extension to Silicon Valley, and Phase 3 of the Purple Line Subway Extension in Los Angeles.

The budget calls for eliminating the Department of Transportation’s New Starts program, which provides about $2.3 billion a year to commuter rail and other infrastructure programs. New Starts was expected to be a major funding source for the Gateway Tunnel under the Hudson River, designed to relieve the 100-year old Hudson River rail tunnels.

The budget eliminated federal funding that local governments have been relying on for all kinds of infrastructure development.

“It’s hard not to wonder how those cuts jibe with the President’s often repeated pledge to invest in infrastructure, “Brian Turmail, a spokesman for the Associated General Contractors of America, told the New York Times. “We had a sense that this was coming, but it doesn’t mean that we like it.”

Richard White, president of the American Public Transportation Association, lamented: “It seems to me, and to many other people, pretty inconsistent with all of the stated intents to invest in the nation’s infrastructure.”

OK, a presidential budget blueprint is traditionally DOA in Congress, where the power of the purse resides and is closely guarded. So that missing $1-trillion infrastructure spending boom could still materialize. Weirder things have happened before. Nevertheless, so far, there is no evidence that there will be massive infrastructure spending. For now it looks like there will be less infrastructure spending.

The Fed already expressed its doubts about any boost to the economy from federal infrastructure spending and apparently doesn’t see that $1 trillion coming down the pike. At its meeting on March 15, it left its economic growth projections essentially unchanged from its meeting in December, with a median projection of GDP growth in 2017 and 2018 of 2.1% and in 2019 of 1.9% – the same lowly levels of past years, to be undershot, periodically by reality.

Where does this leave the stock market? The “Trump trade” was conditioned on, among other things, massive deficit spending on infrastructure projects that would distribute $1 trillion of taxpayer money to the companies involved in it. Wall Street has endlessly hyped this bonanza and has used it to rationalize the recent rally of already irrational stock prices. Now it looks like Wall Street will have to go look for another mirage to hype, or someone is going to end up holding the bag.

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  93 comments for “Stocks Soared on Trump’s $1-Trillion Infrastructure Boom. But that Just Evaporated. Now What?

  1. Tom Kauser says:

    Game on!
    (Russell 2000 has corrected more than rest?)
    Trying to B+

  2. Petunia says:

    I expect the debt ceiling debate to be a WWE food fight. With Mnuchin using up all the treasury cash to pay down debt, he will be broke in no time. This will open the window for all kinds of deals to be made. Since congress only gives the debt lip service, I expect the new limit to be very much higher. What’s a trillion or two at this point. And eventually it will trickle up to the 1%.

    • economicminor says:

      So a Trillion$ trickling up….. will make that Picasso that I was looking at just a bit more out of my reach.. Otherwise, it is just play money to be used in the next SNAP or filling the holes in the shopping complex loan collapse disaster.

      Very little of that kind of money ever actually gets into the real markets.. Main Street where most of us live… except to drive up the costs because of the monopolization and consolidation..

      But if you notice what is happening, the distortions are starting to cost the real economy too.

    • Tom kauser says:

      I trillion dollar commercial R.E. bailout and a 30 foot wall that never gets finished?

  3. Saylor says:

    As much as it has been…’difficult’…to read the markets for all the inconsistencies, now we have a ‘stop/go/stop’ and ‘look over here/not over there’ planning.

    Uh…can we call this a ‘plan’?

    • chip Javert says:


      Let’s see if I’m understanding this correctly: stocks move from 18,000 to 21,000 (+18%) in four months, and you’re unhappy?

      Just for the record: In a democratic & capitalist economy, the Federal Government is not in charge of the “stock market” plan; private industry is.

      • Smingles says:

        Let’s see if I’m understanding this correctly: the stock market at 18,000 was a “big, fat bubble” but at 21,000 it’s not?

        • chip javert says:

          And you know this…because…?

          (Over the past 35 years, I’ve value stocks based on future earnings, but I know nobody else does, so I’m interested in hearing how you formed your “opinion”. I’d also be interested in comparing portfolio performance, but hint, hint, I’m heavily weighted to BRK/A)

  4. mvo says:

    Come on! Let’s make mass transit commuting Great Again!

  5. Michael Fiorillo says:

    If anything, look for looting-friendly “public-private partnerships,” that are “revenue-neutral,” and which will be used to privatize public resources (as Education Secretary DeVos explicitly plans to do with her charter school and voucher subsidies) and turn them into permanent platforms for rent extraction.

    It’s called smash and grab.

    Meanwhile, hopeless, clueless Democrats are running around as if their hair is on fire, looking for Putin under every bed, doing anything they can to keep from facing up to the reasons for their losses in recent years. It’s magical thinking at its most desperate, thinking the intelligence agencies are going to be some kind of Deus Ex Machina that saves them.

    Keep it up, Dims: there are still a few governorships and state legislatures the Republicans don’t control yet. As for the rest of us, hold on tight, it’s going to be a bumpy ride.

    • Paulo says:

      You nailed it.

      We have had a right-wing Provincial Govt. for the last 13 years. (BC, Canada). Public Private Partnerships are the way they do business. They get stuff built with a captive market and also guarantee tolls/fees will remain in place for their contributor/friends in perpetuity. (The only place that citizens got this stopped was the Coquihalla highway…they tried, but people went ballistic and the Govt backed down under the pressure).They have even done this with seniors care. Residents/Citizens still pay the usual funding formula for long term care, (80% of whatever income they have, plus they don’t lose their assets or savings), but the final charge is topped up per resident at taxpayers expense. New facilities are usually decertified in order to guarantee a further profit for their private owners. Then, when workers are forced to re-certify and re-unionized they usually start out at a lower rate than nearby Govt. facilities that are truly revenue neutral. The facilities are nice and staffed at a required formula, but the profit for shareholders is made on the backs of the workers. My brother remarked last week these new facilities are the McJobs of the present economy. They have done this with Highways Maint., and tried to do it with our Crown Jewell, BC Hydro. Luckily, this Govt was stopped at the office staff and customer services.

      Look for new VA facilities (as promised) to be private, as will be roads, bridges, maint., airports, and whatever else you can think of…….. just like the US prison system.

      My mother is in a Govt care facility, and my mother-in-law is in a private one. You take whatever bed is available at the time or you lose your place in line. Both have extreme alzheimers. The Govt facility is much more pleasant. Our entire family wishes both could be cared for in the Govt facility, but all new construction of said has been privatised. Yet, the cost to the taxpayer is the same.

      Look for some infrastructure to be built, but only projects that can generate huge profits for friends will actually be completed. Others will be studied, reports will be written, but they will die in the planning stages. Plus, places like California will be punished, and we all know why.

      • chip javert says:

        News for Paulo

        I’m not buying 100% of the gloom & doom you paint, but I will grant there’s opportunity to screw up any large human endeavor. Especially government ones (it’s one reason why you don’t want a large government).

        For example, when government did projects the “old fashioned way” tax payers got stuck with ever increasing, never paid off debt.

        Yea, places like California will probably be (as you call it) somewhat punished, but only because they have willingly chosen to spend $100,000,000,000 building a high-speed train to nowhere ($3,000 for every man, woman & child in the state). NOTE: this boondoggle was supposed to generate significant private investment, but no businessman will touch it.

        No such thing as a free lunch.

        • Intosh says:

          Are you sure about that? There is no free lunch for average workers but there all-you-can-eat for “friends”.

    • Intosh says:

      Bullseye on the privatization of public resources. That’s exactly what’s gonna happen.

  6. akiddy111 says:

    Wow. That Trump trade indeed. 108 trading days without a 1% drop in the S&P 500. The longest such streak since 1995. Maybe Trump will be the first President in history to never witness a 1% drop during his administration.

    If the S&P continues to advance another 12% (by my reckoning), levels will take out the all time overvaluation record set in 2000.

    As for Trump, he will not change a thing. That guy IS the swamp. At this time, Ivanka and Jared are cosying up to Bezos and the Obamas. Group hugs all around.

    No wall, no tax cuts, no infrastructure spending, no curtailment of immigration or H1b visas. No bringing back manufacturing jobs. No nothing.

    The name calling black Trump pot throwing stones in a glass house at the black Hillary kettle. Talk talk talk.

    Bye bye middle class America. Enjoy your brand new Ford F150. You’re on your own sooner than you think.

    • interesting says:

      “You’re on your own sooner than you think”

      been on my own since 1986, nothing changes no matter who is in the white house.

      And some talk about Trump “cashing in” on the presidency……well Obingo just got a $60,000,000 book deal for his “service”. Where’s the outrage over that cashing in?

      • Kent says:

        I have non-partisan outrage over both.

        • RD Blakeslee says:

          Not much “outrage” here; I’m told it’s bad for my health.

          Just resignation and a lifetime’s setting up “under the radar”.

      • Maximus Minimus says:

        Surely, you must have added a few zeros. No commercial entity is going to pay that for a book unless he is being paid for other services (which I am not ruling out).

        • d says:

          “Surely, you must have added a few zeros.”

          No, that’s the publicized $ #, and the same amount to the previous FLOTUS, $120 M, to the pair of them.

          Is it a pay off, maybe, but they will publish.

          Bibi made 200 m on the speaking circuit, before becoming PM of Israel again (Which is why all the corruption allegations against him are such a joke and insult). Only god knows how much the Clinton’s made (And are still making).

          So how much will POTUS 44 make. public Speaking, is the only thing he is good at.

          But Bibi and Billy, are both a lot more entertaining Speakers, than Obama ever will be.

        • Smingles says:


          “No, that’s the publicized $ #, and the same amount to the previous FLOTUS, $120 M, to the pair of them.”

          $60m for joint rights, not $60m each.

          His books sell, I guess.

      • chris Hauser says:

        that’s the reason for the big smile while on his caribbean vacation.

        ah, never mind.

        as to promises, promises made are easier than promises kept. promises claimed are easier than promises produced.

        ah, never mind.

      • Smingles says:

        “And some talk about Trump “cashing in” on the presidency……well Obingo just got a $60,000,000 book deal for his “service”. Where’s the outrage over that cashing in?”

        The outrage isn’t there because you’re comparing two totally different things. One is a sitting official using his office to enrich himself. The other is a former official getting a book deal based on his experiences.

        How can you seriously think those two things are at all similar?

  7. Sound of the Suburbs says:

    No one can admit things aren’t working.

    The problems run very deep and aren’t going to be fixed with monetary policy.

    Knowledge of economics and monetary theory has been regressing for one hundred years as the wealthy tinker with it to their advantage.

    1920s inequality suited them just fine, so they have bought back 1920s neoclassical economics.

    Why everything looks so familiar:

    1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase

    1929/2008 – Wall Street crash

    1930s/2010s – Global recession, currency wars, rising nationalism and extremism

    1940s – Global war.

    The same absolute faith in markets ensured no one recognized the bubble that had been blowing up which will wreck the economy

    “Stocks have reached what looks like a permanently high plateau.” Irving Fisher 1929.

    In 2007, Ben Bernanke could see no problems ahead.

    The Euro is based on an assumption from today’s economics that it will naturally head to a stable equilibrium. It is an assumption I wouldn’t have much faith in.

    The bankers create money out of nothing, we better hide that, though it is just a mechanism to allow you to borrow your own money from the future. When you know how it works you know why prudent lending is essential and why you don’t want bankers creating money to feed into speculation and asset bubbles. It also help you to realise the debt load is money borrowed from the future, the more debt there is, the more impoverished the future is.

    “…banks make their profits by taking in deposits and lending the funds out at a higher rate of interest” Paul Krugman, 2015.

    This is today’s theory (financial intermediation theory), but it is nothing like the reality.

    If we knew how it really worked we could have seen 2008 coming.

    This is the build up to 2008 that can be seen in the money supply (money = debt):

    Everything is reflected in the money supply.

    The money supply is flat in the recession of the early 1990s.

    Then it really starts to take off as the boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan’s loose monetary policy.

    When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands.

    Credit bubbles are reflected in the money supply (money = debt).

    • Sound of the Suburbs says:

      Neoclassical economics corrupted Classical economics at the end of the 19th and beginning of the 20th Century.

      The distinction between “earned” and “unearned” income disappears at this point and the once separate areas of “capital” and “land” are conflated.

      The landowners, landlords and usurers are now just productive members of society and not parasites riding on the back of other people’s hard work, but they are.

      Free-trade needed a low cost of living as they knew in the 19th Century when they repealed the Corn Laws.

      This knowledge is lost today and the West has priced its labour out of international markets with excessive housing, healthcare (US) and education costs (student loan repayments).

      Free-trade needs subsidised housing, healthcare and education to keep the cost of living down, all known in the 19th Century.

      What if you don’t get the cost of living down?
      You need protectionism.

      Trump has the protectionist solution.
      Bernie had the re-distributive solution.

      Neo-liberal free trade with a high cost of living causes the populists to rise (aka those priced out of global labour markets by national rentiers).

      • Nicko2 says:

        Globalization is far from played out. Growth may be finished in developed economies, however Asia and Africa will each add over 1 billion people over the next thirty years. The middle class in these regions is booming, as are new trade networks. China may be happy to string Trump along, but his threats of protectionism ring hollow and will ultimately be self-defeating…not that he really cares, his cronies will gorge themselves on a $1 trillion spending-spree.

        The next test will be the French, Italy, and German elections.

        • mean chicken says:

          Hurray for Africa being the next globalization frontier so the 1%’s can further their insatiable desire, Giraffe habitat be damned.

          If that’s the plan (and it does look that way) I seriously don’t want to hear anymore about global warming from hypocrites.

          The bizarre madness never ends.

        • Jonathan says:

          Yeah right the new 1 billion strong “middle class” which will also be made mostly jobless by industrial robots that will make slave wage look expensive.

          China is the last beneficiary of the human labor based globalization, get over it.

        • economicminor says:

          I have lots of wonders about globalization.

          Much of the world is into simplicity, survival, family and not materialism. I think that the US is even finding out that materialism has its drawbacks. Especially as the US population has become more indebted and more marginalized and less valuable to the Globalists as workers. I just don’t think that Corporate Globalization has a big future other than moving and selling the three products that everyone needs, fuel, food and water.

          Materialism is about having things, some of which can make life easier but all things need space to use them and space to store them and all things need packaging and wear out.. Many wear out way to soon and are not repairable. All this means more energy, more resources and more trash. More space.

          The US has always been in a rather unique position of having lots of all of the above. We had space.. space to store, space to use, space to dump.. but as our population has grown and as our political system has increasingly supported income inequality, the ability of the US consumer to just consume and consume has been diminishing rather rapidly..

          So, even if the Capitalists can find the next cheap labor place to move its factories to, who are going to be the consumers of all this materialism? Not Japan or China or India or Indonesia or Europe.. Not Brazil or Bolivia or Venezuela or Panama..

          As for adding people, maybe but if you have ever been in Asia you’d know that it is already hopelessly overpopulated. The problems there are on such a survival level that getting the masses to purchase a Ford or a 55″ TV is beyond ridiculous. Africa has its own unique problems with over population and tribalism and insanity and drought. I’m sure that the Middle East is ready to move into materialism.. NOT!

      • Flying Monkey says:

        Free trade is just that…”Free”… The goods never have to paid for with goods of equal scarcity. The deficits the Government runs creates money when they make a issue a bond, as that bond trades just like money. With the newly created money the US run and buys foreign goods so the foreigners can invest it back in the US. As long as the foreigners accept the US dollar and US debt, the US continue this process of living above its means and getting the foreigners to pay for it.

        Why work when daddy has an unlimited credit card that never has to be paid off and is good world wide?

      • RD Blakeslee says:

        “The landowners, landlords and usurers are now just productive members of society and not parasites riding on the back of other people’s hard work, but they are.”

        Not necessarily true.

        When my son decided his “education” at a party-college wasn’t worthwhile, he returned home and eventually started a house building enterprise.

        Our friendly local banker wouldn’t lend him anything on his own signature, though.

        Since I was convinced he was of good stock and well brought up, I co-signed a loan for him.

        He progressed from that to restoring and renting decrepit houses (building some new ones, too), to students at a medical college in a nearby town and is now worth millions.

  8. mean chicken says:

    Much of venture capital is a scam to dump hollowed-out junk off onto unaware shareholders via IPO. Thank your regulators.

    I read a study recently that concluded we have well over $4 Billion of infrastructure improvement needs.

    Of course only Cali counts for anything and that’s been a long standing problem of selfishness so keep it up. No, the country/universe doesn’t revolve around Cali, sorry to break the news. Spend more time considering how to improve your water infrastructure instead, it’s already too late, way overdue.

    At this point it seems the GOP has clipped Trumps wings and sadly, the DEMs support the effort, meaning they’re in on the scam that continues.

    I voted against Grover Norquist yet the current plans are identical to those he pressed for (The very reason I voted for Obama).

    Hopefully Liberals will begin supporting Trump’s original agenda but I doubt they will, given their proclivity for selfishness. You guys are gonna blow it for us all.

    • Wolf Richter says:

      “…we have well over $4 Billion of infrastructure improvement needs.”

      You probably mean $4 Trillion with a T

      • mean chicken says:

        Yes, well over $4T

      • nicko2 says:

        I read fixing roads and bridges ALONE is $1 Trillion. You guys have really fallen behind, your 50 year old backbone infrastructure is crumbling before your eyes, all while your politicians loot to buy villas in the Caribbean.

    • Scott says:

      The study by by the American Society of Civil Engineers, who are the people who would design and build the infrastructure – not exactly an impartial party. It’s in their interest to get as much funding in this area as possible. When reading the report, I like to treat it the same way as a retirement study by Fidelity – the conclusions are generally right, but many of the specifics are heavily slanted in the writer’s preferred direction.

  9. K says:

    There is also the student debt bubble in the United States caused by US colleges inflating the college administration’s and athletic department’s salaries.
    This started in the 1990s when I worked in an university and the excuse the administration and regents used was they had to hike up the salaries to compete with rising corporate salaries. Now there are million dollar college presidents and coaches along with worthless costly programs and buildings that raise tuition across the country. While most of the courses are taught by adjunct faculty that make less than McDonald’s employees.The American university system is mess and needs to be reformed.
    This one major reason why college graduates aren’t buying cars, homes, or investing in their futures. Most of their student loans are going to be a drag on their lives for decades.

    • chip javert says:


      Agreed. College students are simply not equipped to understand the impact student loans will have on the rest of their lives. They should be required to have parental approval. Yea, I know – this will cause all kinds of student yelling & screaming, but you can’t have it both ways.

      WWII gave Americans and almost exclusive monopoly on an educated (especially college educated) workforce & the resulting productivity increases flowed thru to increased living standards.

      Whole chunks of American universities have turned into diploma mills (gender studies, anyone?) , and the American workforce no longer enjoys the WWII margin of superiority (many/most Silicon Valley tech companies will not even interview BA-degreed individuals for college entry jobs).

      If you go to college for 4 years of partying & puking on student debt, there is a high probability you are going to have a difficult time in the real economy.

      • Meme Imfurst says:

        Let me tell you they are in Key West wall to wall and parting like they will never pay it back. On the radio bragging that they are here in 500 to 800 hotel rooms using their student loans to pay for it.

        Granted not all are doing this, but I sure read enough stories that talk about this happening all over the country…like San Francisco to pay rent for example.

    • Dan Romig says:

      University athletic department salaries indeed.

      The U of MN just hired P. J. Fleck to coach the football team, and his 5 year contract is worth $18 million. The U of MN president, Eric Kaler makes $625,250 per year. Governor Mark Dayton takes home just under $125,000 for being the CEO of Minnesota.

      Speaking of infrastructure investment, there is a lobbying effort (fairly quiet and behind the scenes) to complete the Twin Cities’ light rail triangle by connecting downtown St. Paul to the MSP airport and Mall of America.

    • RDE says:

      If you want to understand the student debt bubble you first must understand that our leading institutions of higher education are first and foremost hedge funds using their brand as a front for their core activity. It is only fitting that their CEO’s command inflated salaries comparable to others in the finance business.

      Universities provide value to their paying customers, not by educating them or creating a foundation for wisdom, but by introducing them to their peers who will assume positions of power commensurate with their social class. Why do you think a Harvard or Yale degree is so much more valuable than one from the University of California, and membership in Skull & Bones worth much more than any degree?

      For the vast majority who leave university saddled with lifetime debt and a worthless retail degree, the experience helps socialize them into the debt slavery system and prepare them for a life as consumer/serfs.

      • chip javert says:

        LOL and (unfortunately for students , taxpayers and the economy) not wrong.

  10. JB says:

    I see nothing new with this republican administration . The proposed discretionary budget robs peter to pay paul (the neo cons). I see yearly half trillion deficits as far as the eye can see. Even the affordable care act repeal will eliminate an important funding feature ( capital gain and medicare surcharge taxes) . The provisions would repeal two tax increases on high earners enacted in 2010 to help pay for the Affordable Care Act: an increase in capital gains taxes and other investment-related income, and a surcharge on Medicare taxes. Don’t hear much about that do you ? Additional money to homeland security is a wasted endeavor: TSA Fails 95 Percent Of Airport Security Tests!. The meme “make america great again” should be replaced with ” make america healthy again “. I see nothing being done to reduce
    the cost of healthcare . The egregious welfare/warfare budgets of the past leave little money leftover for infrastructure. For too long congress has relied on loose monetary policy to compensate for much needed structural fiscal policy changes . The swamp still looks full to me and smacks of classic establishment GOP.

  11. Wilbur58 says:

    Hi Wolf,

    I apologize as this question is completely off topic.

    Do you or anyone else know if any modern economy has ever issued a significant amount of currency that wasn’t based in debt?

    I’m reading conflicting reports about Nazi Germany. I’m also reading that there’s bad info out there about the American colonies and Abraham Lincoln, neither of which really included currency with no associated debt.

    Has this ever happened?

    Please let me know.


    • cjip javert says:


      Yea, hundreds of years ago England & France issued gold & silver currency. Worked great until you couldn’t steal any more gold & silver (think Incas) to issue more currency.

      • Flying Monkey says:

        Gold and silver could have the same problems as paper money if their scarcity did no hold them back. If new Gold suddenly surged into the market as money, there would be more Gold chasing he same amount of goods so there would be an inflation, even though gold was the standard. In the end fractional reserve lending allows even a gold based system to be perverted with making money back by debts.

        The only reason there are central banks is to try to shore up the problems generated by fractional reserve lending.

        If there was a gold system and no fractional reserve lending, the world would be a very stable place.

        • Kent says:

          Disagree. Growth would come to a stop. New growth requires more money, otherwise you get deflation. Deflation means you can’t pay back the debts used to finance your business. Businesses and banks go under. This is the classic tale of the US in the 19th century. And is why we have a federal reserve and fiat currency in the first place.

          Though I do agree about fractional reserve banking. This is designed to have the private sector determine where best to create money and build solid businesses. Unfortunately, without stiff regulation, the money will always go to asset inflation. And this is the dirty secret behind where we are today.

      • d says:

        England issued gold sovereigns until,

        “The sovereign is a gold coin of the United Kingdom, with a nominal value of one pound sterling. Prior to 1932 it was a fully circulating coin within Britain’s then Gold Standard currency”

  12. Mary says:

    It is funny to see that so many think infrastructure spendings will be ‘additional’ spendings, funded by tax, rather than in lieu of welfare etc.

    • mean chicken says:

      Infrastructure projects pay dividends for decades, as opposed to funding upwards of $650B of useless military war machines for example.

      The other sector that’s been on an absolute tear has been military contractors.

      • Flying Monkey says:

        Infrastructure projects might pay dividends based upon higher productivity, but mindless infrastructure and bridges to nowhere are as bad as the “broken window fallacy” and useless war machines.

        Much of the shovel ready projects after 2008 were just the Keynes ditch diggers digging a hole and filling it back up, which paid no dividends back.

        • Coaster Noster says:

          Lotsa stuff like $25 million to repave 25 miles of I-80 in California, near Fairfield. A very bad stretch of road. Not “ditch diggers”…how condescending…did you even LOOK at the list of projects? Many had been awaiting funding for over five years!!

          The repaved surface allowed commuters to watch more “Late Night…” get up five minutes later. Not much of an effect, but fewer truck accidents.

      • JB says:

        ah yes . look at the F35 fighter jet costs.
        here’s a quote from jack ma of alibaba fame
        regarding u.s. infrastructure.

      • RD Blakeslee says:

        “…useless military war machines” – mean chicken

        “…it’s Tommy this

        and Tommy that

        And Tommy keep off the grass …

        until the guns begin to shoot” – Ridyard Kipling

        Is there not legitimate need of national defense? – RD

        • Kent says:

          No, not one nation in the world has the capacity to land enough troops on American soil to be a threat to American self-determination.

        • economicminor says:

          “No, not one nation in the world has the capacity to land enough troops on American soil to be a threat to American self-determination.”

          With this I totally agree.. That is why I never got goofy frightened about Communists… What a propagandists joke! All used to scare and control the population..

          Just shows how child like most Americans are..
          Unable to actually analyze irrational threats.. and not rationalize real ones..

        • Maximus Minimus says:

          But a great nation needs great enemies. Moreover, a great nation must see itself as better than the enemies. Too bad those wimpy Ruskies folded so easily the first time.

      • Thor's Hammer says:

        When you are trying to control a global Empire and enforce the Dollar as the world currency, funding the Permanent Warfare State is just the cost of maintaining domination. As the war machine becomes institutionalized and achieves absolute domination of the domestic propaganda media, useless boondoggles like the F35 are inevitable. And an endless series of enemies must be provoked or manufactured. (Russiaphobia being the latest and greatest example.)

        Want to Make America Great Again?

        —Cut the budget for the Permanent Warfare State in half, thereby increasing actual national security.
        —Close almost all of our overseas outposts. The US has about 1200— our chosen “enemy” Russia has 14 and China 1. That’s about the right number.
        —Invest the remaining (huge) military budget in actual defense– projects like developing an impregnable missile defense system. (similar to the Russian response to NATO encirclement.
        —Invest much of the remaining savings from changing the mission of the military into developing a long term sustainable energy basis for the country. And I’m not talking about the junkie fix of exponential increase in drilling fracked wells.

        —Commercialize safe and cost effective nuclear technologies like the Liquid Fluoride Sodium reactor.
        —Subsidize the huge employment benefits that would result from doubling the energy efficiency of the nation’s existing housing stock.
        —Build a nationwide grid of HVDC transmission lines to link diverse renewable energy sources across regions and partially overcome the intermittentancy problem.
        —Cut medical costs in half by adopting a medical system similar to the successful examples in all the other advanced countries in the world.

        Don’t hold your breath waiting for the Democon/Repugnat one party political system to even entertain such thoughts.

  13. chip javert says:

    The problem here is 3 invalid assumptions concatenated into a headline:

    1) “Stocks Soared on Trump’s $1-Trillion Infrastructure Boom” – Infrastructure was probably a part of the post-election stock rise, but post-Obama deregulation was a much bigger component.

    2) “But that Just Evaporated ” – Last I checked (about 2 minutes ago), the stock market had moved from around 18,000 on Nov 8 to roughly 21,000 as of Friday. Absolutely nothing has evaporated.

    3) “Now what?” – In the med-long run, stock prices are the NPV of expected future earnings. Now it’s time for deregulation to allow increased earnings over the remainder of 2017. If you were expecting this to happen instantaneously, you probably also believe in the Easter Bunny.

    • Wolf Richter says:

      1. $1 trillion (with a T) handed to corporate America is worth a lot more to corporate America (and stockholder hopes) than some deregulation.

      2. If you re-read the headline, you will discover that the “just evaporated” relates to the phrase nearest to it, namely “$1 trillion infrastructure boom” – and not the phrase furthest away from it.

      3. “In the med-long run, stock prices are the NPV of expected future earnings” – I learned that getting my MBA in the mid 1980s. This theory has long ago been obviated by events. It’s an old and outdated textbook theory without any relationship to reality. None.

      • chip javert says:


        I enjoy your articles & generally respect your opinion.

        On this, as an old retired corporate CFO, we just disagree (and strongly).

        I will grant you I have no faith in what drives tech stocks (I’m a Berkshire Hathaway kind of guy). However, I would be very interested in reading an article you write describing what drives med/long term stock prices.

        • Wolf Richter says:

          Chip, check out Robert Shiller. I’m not a huge fan of his, but he has a point: A good part of stock valuations has to do with mass psychology. But there are other elements too, including manipulation by the industry (as you know) because everyone wants high stock prices, no matter what.

          Look at Tesla. The company has been around for a decade. It has horrendously hugely negative cash flows. It has lost a ton of money every one of those 10 years. It keeps extracting new money from investors ($1+ billion just this week) and burns it. There is no indication that this will ever change. So NPV of future cash flows has been hugely negative. And yet, the company is worth $42 billion. There are many of these companies out there. These valuations baffle a rational mind and cannot be explained with rational formulas like NPV of future cash flows.

        • Dan Romig says:

          So true regarding Tesla! Elon Musk is indeed brilliant, and according to Forbes he’s worth a bit over $13 billion.

      • chip javert says:


        My reason for quibbling about the value of $1T of infrastructure vs deregulation, is that (assuming a 10% profit) $1T of infrastructure is a one-time $100M profit; the vast majority of deregulated “regulatory costs’ flow directly to the bottom line, year after year. After year.

        • Kent says:

          Yes but regulations aren’t like property. They can’t be counted on to consistently provide income (or cost savings). They exist at the whim of the voting public. And they generally come back with a vengeance when the first bad apple overplays their hand for a quick buck at everyone else’s expense.

        • chip javert says:


          Technically, of course you are correct.

          Any jurisdiction that materially constrains the framework of commerce (e.g.: regulations, cost of funds, operating hours), imposes a “cost” on commerce within the jurisdiction.

          The frequency of changes to these “costs” (i.e.: the less predictable costs become) also imposes a “cost”.

          If you don’t like “bad apples”, the solution should be to not buy bad apples. This works better for some things (automobiles) than others (meal-time telemarketing robo-calls).

          You’d think we’d have some way to punish the 1% of “bad apples” without punishing 100% of the commercial category.

      • chip javert says:

        Oooops – $100M should be $100B one-time profit.

        Mea culpa.

        • David G LA says:

          What about all the benefits we all will gain from improved roads, airports, hospitals, schools for the next 10 – 20 years ? Surely that has to count for something?

        • d says:

          “What about all the benefits we all will gain from improved roads, airports, hospitals, schools for the next 10 – 20 years ? Surely that has to count for something?”

          That’s why GOOD infrastructure spending (Not pork bridges to nowhere, or boondoggles) is important and should have been done by P 44 in late 09-15.

          Infrastructure spending itself does not grow an economy.

          It is one of the building block’s to grow one however (Eg Hoover Dam) which supplied stable energy for much WW II US industry that would otherwise not have been available.

      • RD Blakeslee says:

        Another outdated textbook theory: “Corporate earnings pay dividends, which are the reward for investing”.

    • Intosh says:

      “In the med-long run, stock prices are the NPV of expected future earnings.”

      An entire industry exists to profit from people who believe such theories.

      • chip javert says:


        Nonsense. My 35+ year investment in Berkshire Hathaway is doing just fine. Rather, I know there is an entire industry willing to make money from people WHO DO NOT believe earnings drive price.

        Investors come in all flavors, with considerable overlap. Of the roughly 240M USA 18+ year-old adults, 55% directly own “stocks” (IRA, 401-k, mutual funds, stocks). I have no analytical evidence, but I’d guess the investor universe breaks down as follows:

        1) Investors who read financial statements, understand business risk, and have informed opinions of how investments will fare in upcoming economic conditions (probably well under 5% of all investors);
        2) Investors with some understanding of investment & business risk, but fully understanding they cannot analyze individual companies (probably about 10-20% of investors; example: mutual fund, especially index fund owners)
        3) Investors who “know” they are smarter than everybody else, and intend to sell out to some fool at peak market, just before the crash (about 10% of all investors; example: Alegant stock owners);
        4) Investors who drank the cool-aid, at one point absolutely believing a specific currently-money-losing investment will eventually make them rich (just like Facebook!); however, dreams die hard and can linger for years (probably 10-20% of investors; example: Uber & Tesla stock owners)
        5) Investors who haven’t a clue about investing, see the stock market as legalized gambling, and have a general attitude of “how hard can it be?” (probably 66% of all investors; example: SNAP stock owners).

        Others may disagree, but there are tens of millions of investors who willingly suspend reality to give their money to Wall Street (almost no selling required). That doesn’t mean “investing” is a fraud, it just means millions of improperly experienced & educated people attempt it without proper training (you wouldn’t give the keys to your 455hp 2017 C7 Corvette to your 10-year-old and send him off alone so he could “learn how to drive”…would you?).

        • chris Hauser says:

          i like snap. call me contrarian.

          it’s disappearing ADD/ADHD ephemerality seems just the ticket.

          it’s the no-vote i don’t like. they made a mistake. but who’s really paying attention at/to annual meetings anyway?

        • chip Javert says:


          I have no problem with investments in SNAP. If you’re a knowledgable investor you might take a fling with a constrained amount (1-3%?) of your capital IF AND ONLY IF:
          1) You think you understand the business model & target audience, and
          2) You are prepared to lose most of the investment.

          That’s materially different than investing essentially all your capital in a stock with 2016 revenue of $405M and expenses of $925M (yup; for every $1 of revenue, SNAP had $2.25 of expense).

        • Intosh says:

          We are not contradicting each other. But in the context of this article and of the overall investing climate, I believe what you describe is less and less true.

          Even Berkshire Hathaway has been slowly drifting away from that philosophy, from the “old ways”.

  14. akiddy111 says:

    Talking about baffling a rational mind.

    What about those gold mining stocks that are run by managements that are constantly issuing stock to raise capital for money losing investment projects ? This has been going on for over a decade.

    Although i believe Tesla is seriously overvalued, at least it’s building a brand, unlike Yamana Gold or Barrick Gold.

    • Nicko2 says:

      Credit to Musk, he’s actually building infrastructure and innovative products of the 21st century. He will be a survivor after the crash. ;)

      • chip javert says:

        Problem is Musk does that with tax-payer dollars (usually structured as bonds) and/or selling tax-payer subsidized products (end consumer gets a tax deduction on purchase price; example: electric cars).

        Assuming he’s successful at it, ownership benefits flow to him & his shareholders.

        Tax-payers (who took most of the financial risk) get nothing other than income taxes from the on-going business. 100% of the

  15. bill tilles says:

    Hi Wolf,

    I came across an article before the election on infrastructure in a somewhat obscure journal. What struck me was that the co-authors were Peter Navarro and Wilbur Ross (both of course members of the Trump administration). Their proposal was mostly about how to finance infrastructure using repatriated tax money from US corporations with extensive overseas operations. In other words, they had very little to say about infrastructure as such and lots to say about public-private partnerships and tax repatriation. As a result, I have to conclude that the infrastructure discussion by federal officials, such as it is, is merely a smokescreen for corporate friendly tax policy plus increasing privatization.

    But in terms of what’s driving the stock market? My guess is it’s expected, pro-corporate changes in tax policy. (Party like it’s 1899?)

    • Petunia says:

      I didn’t see that article, but I can already picture what they can do. They can repatriate overseas cash through an infrastructure bond, saving the buyer the 35% corporate tax, and giving them a return on top of the tax savings. The buyers can then unload them on the public and totally bypass the taxes they should have been paying.

      Since fraud is the business model, this would work. Leona Hemsley was right, only the little people pay taxes.

      • chip javert says:

        Actually, Leona is wrong (and, coincidently dead):

        The US top 1% earn about 20% of US income (depending upon how you define income) and pay 40% of federal income tax.

        In golden California, the top 145,00 tax payers (out of 15.5M CA taxpayers) yield 50% of the state’s income tax.

        ps: just in case you missed it, Donald Trump paid a higher income tax rate than either Obama o Bernie.

        But we digress:

        Why should companies headquartered in the USA be expected to bring global profits back to be taxed 35% (highest in industrial world) by the USA? Apple (HQ in Silicon Valley, CA) generates over 66% of it’s profits outside the USA.

        • DH says:

          Surely you’re not using a single tax return from a dozen years ago as an indication of what Trump pays in taxes.

        • chip javert says:

          You can make up all the excuses you want, but it’s the only data we have (thanks to Rachael).

          Just like you, I have no factual idea what the rest of his taxes look like. A summary of my thoughts:

          1) I SERIOUSLY doubt Obama’s IRS cut Donald Trump a tax break (especially once they knew he was a candidate);
          2) I’m surprised someone like Lois Learner has not released the entire return (tax returns for complex entities are easily over 1,000 pages long);
          3) Review & enforcement is the IRS’ responsibility; even if I disagreed, there’s exactly zero I can do about it.

        • d says:

          “Why should companies headquartered in the USA be expected to bring global profits back to be taxed 35% (highest in industrial world) by the USA? Apple (HQ in Silicon Valley, CA) generates over 66% of it’s profits outside the USA.”


          This is also why you can not successfully run a Multinational. Now simply Global corporate, from NZ.

          As it has the same, ridiculous, repatriation, tax rules.

          Multinationals need to be encouraged to bring their foreign generated profits home, with carrots, not stick’s. As it instantly benefits the home economy, simply by injecting that much liquidity into it.

          A NZ company makes a HUGE amount of Household whitewear in Tijuana (Much of it under US Brand names) and exports it to the US. That operation was set up, as the Leftist NZ Government that increased the taxes (Labours envy taxes) would not listen to the input from business. The profit from that operation, and several others that company has, never goes anywhere near NZ. They have never been a nice company, but they can not be faulted, for correctly holding their obligations to stock holders, above their obligation’s to states

          Global corporations, have obligations, to global stockholders. It is not in the interest of the global stockholder, to give that much money away in tax, to the US, or any government..

  16. Meme Imfurst says:

    Wolf, the articles you have posted about retail crashing and other assorted stories relating to the consumer being ‘cash restricted’ at the least, I have to wonder since the cash continued to flood into equities for a total of $14.5 billion, the 11th consecutive week of inflows, this was entirely due to allocations to ETFs, which saw $19.7 billion in inflows, the highest weekly amount YTD, and so…is this where the mom and pops are spending?

    As for trains, there are iconic traditions for train travel such as New York City, but the rest of the country are car conditioned. Take South Florida for example, TRIRAIL from Palm Beach to Miami, such a great idea that the public clambered for to end hours of backed up commuter cars creaping at 2 miles an hour. Now running for several years and the ticket sales are barely enough to cover the cost of printing the tickets. Is San Jose any different, I doubt it.

    There are double decker buses which are like first class airliners inside, can hold 120 people and more. Since likely 90% of the commuter cars have ONE person inside, that one bus can that 119 vehicles off the road. But that won’t work either because Americans are car spoiled.

    • Wolf Richter says:

      “…is this where the mom and pops are spending?”

      A couple thoughts:

      – The averages tend to fog up the picture. The majority of Americans own no stocks. So those who are buying stocks are the lucky ones.

      – Leverage has been soaring. Leverage creates a lot of buying pressure. Margin Debt as surged to new record, and there is enormous leverage at the institutional level.

      – Online retail is growing rapidly. So no problem there. The problem is with brick-and-mortar retail, which my reporting points out. This is a structural shift that will not reverse. This is huge change in how society spends its money, and the consequences are showing up all over.

      Concerning Rail: Rail works very well in densely populated areas (if connected to transportation for the “last mile”). People use it. The New York Subway, the BART in the Bay Area, and other similar systems are packed during rush hour.

      And “fairly fast” and “high-speed” rail works well between large densely populated areas that are several hundred miles apart (NY-DC, which, from city center to city center, is a lot faster than driving or flying). And you can work or read on the train.

      Rail doesn’t work in sparsely populated areas with no big population centers at the ends.

      • RD Blakeslee says:

        “The majority of Americans own no stocks. So those who are buying stocks are the lucky ones.” – Wolf

        Wolf, I think I’m lucky (I’ve posted my “spammy” mini-biography here too many times already, I guess).

        A big part of that “luck” is never buying stock in somebody else’s enterprise.

    • RDE says:

      “Buses and trains won’t work because Americans are car spoiled”

      Sorry, but there is a real world out there with consequences. Peak Oil—- remember that quaint concept? Well it actually is in the past. Peak new discovery in the US happened in the 1970’s. Peak production of conventional oil worldwide happened in 2005. The production plateau that we are now on is based upon temporary and unsustainable technologies like cooking tar out of sand, drilling and fracking shale deposits at an exponentially increasing rate, pumping water into old Saudi wells to lift the remaining oil to the surface, and drilling at immense depths in the ocean.

      It doesn’t matter how car spoiled Americans are— their next generation will not be commuting to work two hours a day in anything that vaguely resembles today’s cars.

      • economicminor says:

        It doesn’t even matter whether you believe in peak oil.. Just go to India or China or almost anywhere and you’ll understand that the world is approaching if not at peak humans..

        And the way humans breed incessantly, even doubling the worlds population in 20 years means that in order for every human on the earth today to have as much access to oil as they do today, the oil industry would need to also double.

        Do you really think that can happen? Or that we will develop some alternative transportable fuel? And be in high enough production if it in 20 years..

        “It doesn’t matter how car spoiled Americans are— their next generation will not be commuting to work two hours a day in anything that vaguely resembles today’s cars.”

        Not going to happen!

        • Maximus Minimus says:

          It is spring, and the snow is melting, uncovering winter trash that the human trash left behind. Where did the last year trash go: to field, rivers and oceans. Peal oil, peak trash, peak everything – there is only one way to go.

        • chip javert says:


          At current rates, earth’s population doubles every 63 (not 20) years. Growth rate tends to go down as populations get wealthier.

  17. Maximus Minimus says:

    No infrastructure, but think of all the beautiful boats and guns.

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