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Delivered daily by 8 a.m., Morning Money examines the latest news in finance politics and policy. | | | | | |  | | By Ben White and Aubree Eliza Weaver | Editor’s Note: Morning Money is a free version of POLITICO Pro Financial Services' morning newsletter, which is delivered to our s each morning at 6 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. | | | The everything rally — Well, it’s back. GameStop shares soared again and twice faced trading halts before closing up 104 percent at $91.71 after a management shakeup. Make no mistake, the $6.4B market cap game retailer is worth nothing close to $91 per share. But these kind of bubbles are popping up everywhere from housing to commodities to crypto currencies to the stock market itself. Netflix, just to pick one example, is a terrific company. Is it worth nearly 100 times earnings? You tell us. And this presents a vexing question that will be answered in possibly painful ways in the months ahead. The world is absolutely soaked in emergency central bank cash. And there is roughly $2 trillion more in stimulus about to flow into the U.S. economy (though it may not include the $15 minimum wage pending the Senate parliamentarian). Sure there could be a perfect scenario in which vaccines including the new one from J&J ignite the economy — but don’t spark crazy inflation — and everything works out fine. But there’s a much larger chance that at least some of these bubbles burst. The stock market could tank in catastrophic ways if the Covid optimism scenario fails to play out or inflation rockets higher. MM has no desire to throw cold water on the idea that the economy is set to rock in the coming months. We’d love it as much as anyone. Bring it on. But the current disconnect between financial asset valuations and underlying economic fundamentals is truly insane and a recipe for potential disaster that would totally upend President Joe Biden’s economic plans. GOOD THURSDAY MORNING — Email me on bwhite@politico.com and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on aweaver@politico.com and follow her on Twitter @AubreeEWeaver. | | | | NEW - “THE RECAST” NEWSLETTER: Power dynamics are changing. “Influence” is changing. More people are demanding a seat at the table, insisting that all politics is personal and not all policy is equitable. “The Recast” is our new twice-weekly newsletter that breaks down how race and identity are recasting politics, policy and power in America. 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Thank you to our sponsor, Intel. | | | | | | | | President Biden “will participate in an event commemorating the 50 millionth COVID-19 vaccine shot” and participate in the National Governors Association’s Winter Meeting … Senate Banking has a hearing at 9:30 a.m. on “The Coronavirus Crisis: Next Steps for Rebuilding Main Street” … Jobless claims at 8:30 a.m. expected to fall to 825K from 861K … SENATE WAITS FOR THE WONK RULING — Our Caitlin Emma and Marianne LeVine: “The Senate is girding for a wonky decree that could determine whether major pieces of … Biden’s $1.9 trillion relief package are left on the cutting-room floor. “In a courtroom-like setting with high-stakes legislative consequences, staffers for both parties argued behind closed doors on Wednesday over whether critical pieces of Biden’s coronavirus relief plan run afoul of arcane budget rules. The referee in this dispute: the Senate parliamentarian … Hiking the minimum wage to $15 an hour is on the docket, in addition to pension issues and subsidies meant to help laid-off workers remain on their health insurance” MNUCHIN PLANS NEW FUND — WP’s Jeff Stein and Yeganeh Torbati: “Steven Mnuchin … is planning to start an investment fund that is expected to raise money from sovereign wealth funds in the Persian Gulf region and other investors “The fund, based in Washington, would focus on areas including financial technology and entertainment, among other potential sectors … Mnuchin, who worked as a Wall Street executive and film producer before joining the Trump administration, has begun hiring for the endeavor. … The United Arab Emirates, Kuwait, Qatar and Saudi Arabia control some of the region’s largest investment funds, according to the Sovereign Wealth Fund Institute” TANDEN HOPES DIM — Our Marianne LeVine and Caitlin Emma: “Neera Tanden saw both of her Senate committee votes postponed Wednesday … as her nomination to lead the White House budget office nears the brink of collapse and as bipartisan appetite to elevate an alternative nominee grows. … “Meanwhile, the Senate’s top Republican appropriator said he would support Shalanda Young, the former clerk and staff director for the House Appropriations Committee, to lead OMB if Tanden’s nomination implodes.” POWELL SAYS DON’T DECLARE VICTORY — Our Victoria Guida: “Federal Reserve Chair Jerome Powell … cautioned lawmakers against prematurely declaring victory on the economy amid optimism about the coronavirus vaccine, pointing to the millions of Americans still out of work. “Powell, in two days of testimony before House and Senate committees, also downplayed fears that an additional burst of spending from Congress would lead to out-of-control inflation. And he said forecasts of a healthier economy later this year — Powell himself told lawmakers that growth could be as much as 6 percent — are not assured.”
| | | GAINS IN BANK STOCKS HELP LEAD MAJOR INDEXES HIGHER AP’s Damian J. Troise and Alex Veiga: “Stocks closed broadly higher on Wall Street after shaking off a wobbly start. Banks helped lead the gains as bond yields rose, which will allow banks to charge higher rates on mortgages and other loans. “The S&P 500 added 1.1 percent Wednesday and the Dow Jones Industrial Average rose 1.4 percent to another all-time high. Small-company stocks continued to outpace the rest of the market, as they have done since the beginning of the year. The yield on the 10-year Treasury note rose to its highest level in over a year. GameStop doubled suddenly in another burst of volatile trading.” JPMORGAN: WALL STREET’S FEAR GAUGE IS IN A BUBBLE — Reuters’ April Joyner: “Wall Street’s ‘fear gauge’ is in a bubble, according to analysts at J.P. Morgan. Investor appetite for protective options has kept the Cboe Volatility Index elevated despite muted moves on the benchmark S&P 500, according to the bank. "The gap between investor expectations for volatility in U.S. stocks, as measured by the VIX, and actual moves on the S&P 500 is near its highest levels over the past 30 years, said Marko Kolanovic, J.P. Morgan’s global head of macro quantitative and derivatives strategy.” | | | POWELL PLEDGES TO MAINTAIN FED’S EASY MONEY POLICIES UNTIL ECONOMY RECOVERS — WSJ’s Paul Kiernan: “Federal Reserve Chairman Jerome Powell underscored his determination to return the U.S. labor market to full strength, saying Wednesday the central bank won’t begin to tighten easy-money policies until it sees much more improvement. “The Fed will maintain ultralow interest rates and continue hefty asset purchases until ‘substantial further progress has been made’ toward its employment and inflation goals, Mr. Powell told the House Financial Services Committee in testimony identical to his opening statement Tuesday at the Senate Banking Committee. He said those goals are ‘likely to take some time’ to achieve.” And he’s pushing back on [com]concerns of prices rising or the economy overheating — Bloomberg’s Craig Torres and Reade Pickert: “Federal Reserve Chair Jerome Powell emphasized his view that the economy has a long way to go in the recovery and signs of prices rising won’t necessarily lead to persistently high inflation. “‘Our policy is accommodative because unemployment is high and the labor market is far from maximum employment,’ he told the House Financial Services Committee on Wednesday, in his second day of testimony to Congress. ‘It’s true that some asset prices are elevated by some measures.’” FED FINANCIAL SERVICES SYSTEMS DISRUPTED FOR HOURS — WSJ’s Paul Kiernan: “The Federal Reserve said Wednesday an “operational error” disrupted all of its financial-services systems for several hours, including the electronic payments settlement service used by banks, businesses and government agencies. “‘A Federal Reserve operational error resulted in disruption of service in several business lines. We are restoring services and are communicating with all Federal Reserve Financial Services customers about the status of operations,’ Jim Strader, a spokesman for the Richmond Fed, which administers the central bank’s financial services, said in an emailed statement.” SEC TO UPDATE CLIMATE-RELATED RISK DISCLOSURE REQUIREMENTS — The Hill’s Sylvan Lane: “The Securities and Exchange Commission (SEC) announced Wednesday that it will update its guidelines on how publicly traded companies should disclose climate change-related risks to investors. “Acting SEC Chair Allison Herren Lee said in a Wednesday statement that the commission will review how companies were complying with its 2010 guidelines, discuss climate-related disclosures with firms and analyze how the stock market is handling climate risks. The SEC will then update those guidelines, likely expanding on how much information companies are expected to disclose about the risks climate change poses to their business.” FINANCIAL FIRMS RAISE U.S. GDP GROWTH ESTIMATES — Reuters’ Stephen Culp: “Several major financial firms have upped their forecasts for U.S. economic growth based on expectations that President Joe Biden’s proposed $1.9 trillion Covid-19 relief bill will come to fruition and bolster the recovery from pandemic-related shutdowns. … “HSBC Holdings, Europe’s largest bank, raised its estimated full-year 2021 GDP growth forecast by 1.5 percentage points to 5 percent, citing the expected revival in consumer spending. It increased its 2022 growth call to 3.0 percent from 2.5 percent. It also cited the U.S. housing boom’s impact on residential construction. Deutsche Bank increased its GDP growth forecasts for 2021 and 2022 as well, assuming the final fiscal aid package will be worth $1.6 trillion to $1.7 trillion.” BIDEN ECONOMIC AIDE SEES STEADY RECOVERY AS VACCINATIONS PROGRESS — WSJ’s Kate Davidson and Richard Rubin: “Economic activity will pick up as the pandemic recedes and Americans are vaccinated against Covid-19, but the recovery will be gradual rather than sudden, a top economic adviser to President Biden said Wednesday. “‘It is a dimmer switch, not an on-off switch,’ Jared Bernstein, a member of the White House Council of Economic Advisers, said at a Wall Street Journal Executive Membership Series event. ‘People are not going to snap back into action on some set date because the vaccine penetration rate hits 53 percent or whatever. It’s going to be more gradual.’” | | | | TUNE IN TO GLOBAL TRANSLATIONS: Our Global Translations podcast, presented by Citi, examines the long-term costs of the short-term thinking that drives many political and business decisions. The world has long been beset by big problems that defy political boundaries, and these issues have exploded over the past year amid a global pandemic. This podcast helps to identify and understand the impediments to smart policymaking. Subscribe and start listening today. | | | | | | | | TRANSITIONS: PAUL RYAN JOINS PE FIRM — Per release: “Solamere Capital, a multi-strategy private equity investment firm, announced that former Speaker of the House Paul D. Ryan is joining the company as a Partner. TOP GREEN AIDE JOINS NYSE PARENT COMPANY: Robert Eskridge, who was most recently chief of staff to Rep. Al Green (D-Texas), is leaving the Hill after nearly a decade to become director of government affairs at Intercontinental Exchange, the company that owns the New York Stock Exchange. WHY ARE WE STUCK WITH T+2? — Via Michael Piwowar, executive director of the Milken Institute’s Center for Financial Markets and former SEC commissioner in the WSJ: “The recent frenzy over GameStop, AMC and other so-called meme stocks led to unprecedented margin calls … “The mania also broadly disrupted retail trading. As the dust settles, many investors are asking: Why does the transfer of ownership, or settlement, for most securities transactions in the U.S. occur two business days after the trade date, or T+2? This is 2021. Why haven’t we already moved to T+1 or T+0?” | | | | Follow us on Twitter | | | | Follow us | | | | |  |
