During his campaign, Biden promised “a second great railroad revolution” to ensure America has the cleanest, safest, and fastest rail system in the world for both passengers and freight. That commitment is part of a pledged $2 Trillion investment in infrastructure, transit, power, electric vehicles, charging stations, and ‘green’ buildings with the goal of net-zero emissions by 2050. With a 50-50 Senate1, the Democrats fall short of the 60 votes needed to overcome a Republican filibuster. To pass their spending initiatives Democrats must select either a) the tax-driven ‘reconciliation’ process which requires a Senate majority to pass2, b) do away with the filibuster, or c) consider working across the aisle. 

The markets have priced in significant additional stimulus in the first quarter of 2021, beyond December’s $900 Billion Covid fiscal package (which brought the total current fiscal stimulus since February 2020 to $3.5 trillion). Current stimulus spending is more a share of GDP than the entire response to the ‘07-‘09 recession (and it has been spent in less than two years). With the Fed promising to keep interest rates low until inflation reaches 2% and unemployment drops to pre-pandemic levels, the case for a robust recovery is widely expected. Economists at Goldman raised their 2021 forecast for U.S. economic growth to 6.4% reflecting their expectations of additional Federal Stimulus early in the new Administration. Biden’s $4 Trillion in tax increases on corporations and households earning more than $400K will come later after the fiscal stimulus and a successful inoculation campaign unlock consumer demand.

Congress will shift its focus to climate change and social equity issues, the Biden Administration to constructive international cooperation. Past Democratic Administrations shackled economic growth with excessive anti-business regulations. Expect Congress to use the Congressional Review Act, which allows the Senate and House to overturn regulations finalized in the 60 legislative days prior to the Inauguration, using a fast-track process that only requires a simple majority vote. Already, to ensure global consistency, the Environmental Protection Agency set its first-ever climate standards for commercial airlines and large business jets (December 28th). The new rules are meant to prevent U.S. jets from being shut out of international markets. They create efficiency standards to limit carbon-dioxide and nitrous-oxide emissions from new commercial airliners starting in 2028 (OEMs will have to apply the limits to any new designs starting this year).

On January 26, the U.S. will implement Covid-19 negative testing requirements for all arriving international travelers.  The number of arriving international passengers has risen sixfold from June to November. With demand returning, hard asset investment will work as a hedge against a jump in inflation that will come as central banks print money and sharply expand their balance sheets.  

2021 will be an improving year, much better than previously thought. Opportunities are to be found as the over-supply of railcars continues and thirty percent of the commercial aircraft fleet remains parked. Long term transportation investment demands analysis of market demand and supply, and effective decision making informed by expected changes in value and cash flows. See beyond conventional thinking to identify secondary market trends and equipment opportunities before they are recognized by most market participants. Call RESIDCO.

Glenn P. Davis, 312-635-3161 davis@residco.com

1 The last 50-50 Senate was in 2001.

2 Republicans used ‘reconciliation’ to pass the Tax Cuts and Jobs Act.

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