One of the issues I've written about periodically this year is the potential for a federally funded infrastructure investment program to be pursued by the next executive administration. The positive response Trump received from supporters with respect to such, starting last summer, became the catalyst for Clinton to increasingly promote her own version of the same.
It's been about two months since I last discussed the issue.
Since then Clinton has officially won the Democratic nomination, ensuring that infrastructure is now on the agenda for the 2018 budget and beyond, no matter who wins in November.
Another issue has begun to take shape in the past two months, and it is also in support of this occurring. Federal Reserve bank presidents have begun promoting the need for fiscal stimulus measures and supporting doing so by way of infrastructure investment, due to its high fiscal multiplier.
The latest to weigh in publicly in support of fiscal stimulus generally and through infrastructure investment specifically was John Williams, the President of the Federal Reserve Bank of San Francisco.
One of Williams' motivations for suggesting fiscal stimulus by way of infrastructure is that monetary policy is not providing the countercyclical stimulus anticipated, and changes to how it is implemented need to be considered.
I won't discuss that here, but other bank presidents have begun to publicly express similar thoughts concerning the need for fiscal support for monetary policy and infrastructure as the preferred route for such.
There are two fundamental aspects of this that are important for investors to be aware of.
The first is that, after having greatly reduced public discussion of the need for fiscal policy support for monetary policy since Janet Yellen took over as the Fed Chair, FOMC members are once again doing so.
The second, and more important point, is that the discussion concerning such is coming from bank presidents, not Fed governors this time.
Federal Reserve bank presidents reflect the desires of the member banks and bank clients in their respective regions, and the overall state of the economic environment in them. That means that they are expressing the collective desires of the real world experience of lenders and borrowers.
When Fed bank presidents state that monetary policy isn't succeeding, that fiscal stimulus is needed and that infrastructure investment is how to do so, they are, by implication, reflecting the fact that private sector demand has been exhausted and demand must now come from the public sector.
I last addressed that issue in the column "Fed Fails to See No Pent-Up Demand Is Left". It appears now that Fed bank presidents have finally been made aware of this situation by their constituencies and are acting on it.
While this provides major support for the political viability of an infrastructure investment program being implemented at the federal level during the next administration, it is perplexing to me that the Fed governors are still not publicly voicing support for such a program.
In fact, no Fed governor has even given a public speech in the last month, or since Clinton was officially nominated by the Democratic party, let alone discussed fiscal stimulus or infrastructure.
As I discussed in the June column referenced at the beginning of this column, Fed Chair Yellen refused to comment on the issue in her semi-annual monetary policy report to the Congress, even as members of Congress were obviously seeking her support for such program.
I'm not really sure what to make of that at this point, but it appears that the bank presidents are breaking ranks with Fed governors and the Chair over the issue.
It is possible that the lack of support for a fiscal stimulus package by the Fed governors is a reflection of the Federal Reserve Board's desire to have an expanded mandate and more power, and that fiscal stimulus would undermine the political viability of that occurring.
Regardless of the lack of support from the Fed governors, the fact that both presidential candidates have made infrastructure investment a central part of their platforms and the Fed bank presidents are beginning to offer public support for it means that it is highly likely it will be implemented in some form and to some degree for 2018 and beyond.
The three preferred equities for speculating on such a program occurring that I've written about this year are Jacobs Engineering Group (JEC) , Fluor Corporation (FLR) , and Chicago Bridge & Iron Company (CBI) .
Jacobs is up 29% year to date and Fluor is up 9%, but Chicago Bridge is down 14%.
I'm not sure why Chicago Bridge hasn't performed better, but it may have to do with its status as a Dutch company and concerns that domestic federally funded infrastructure will be primarily directed to U.S.-based companies.