The Right And Wrong Infrastructure Plays

Written by Adam English
Posted November 13, 2018

Following the election, the press has been in search of common ground.

The problem is it is looking for it in the wrong way.

There is a lot of talk about infrastructure being a prime target for bipartisan compromise.

I don’t buy it. At least not the way it is being presented, and not the infrastructure being talked about.

Here is why: Infrastructure is being discussed by both parties, and the end goals are the same, and it is just assumed that these two criteria are enough to create a path forward.

That isn’t enough, though. Far from it. Just like what an infrastructure bill would build, the bill itself cannot be built on a bad foundation.

Meanwhile, there are fantastic infrastructure projects being planned and funded right now that have nothing to do with the government.

Here is the difference between them.

It’s A Trap

What is being ignored by the press’ top-down perspective is the reality of how the infrastructure bill will be funded.

Yes, the Ds and Rs all know that roads, bridges, airports, water and sewage, and energy infrastructure are all in desperate need of investment.

Both parties agree that centralized government will have a major role in spurring that investment.

The problem that will sink any bill is the source of funding. It is the same political trap that tanked the proposed infrastructure bill one to two years ago.

The taxpayer burden of a $1 trillion infrastructure spending bill is unpalatable for Republicans if it means new taxes.

Republicans believe they can simply offset spending. The “No New Taxes” pledges are held and government priorities are adjusted.

Except it isn’t that easy in the real world and never will be. Republicans couldn’t reign in spending for the large tax cut they passed and deficits and the debt are exploding.

Any infrastructure bill offsets will have less funding to target and less political will to make it happen. Party infighting is all but guaranteed to keep bills in committee, or irreconcilable between the Senate and House.

Then there are the Democrats, who will want to fund from taxpayer money almost exclusively. That’s a poison pill right away.

The only solution that attempted to bridge the gap between parties was in Trump’s last infrastructure bill. It pledged $200 billion of a targeted $1.5 trillion and left the rest up to corporate and private sector investment.

That will never work. Public/private enterprises for infrastructure are often a mess, letting down businesses, citizens, and politicians alike.

They’re highly regulated to deliver small profits to companies that pay for massive capital expenditures up front. Then they're subject to the whims of regulators on local, state, and federal levels over the many years it takes to see a return on investment.

That is the reason the last Trump infrastructure bill failed to attract any large corporate support and any new bills never will.

The Right Plays

I truly believe that any comprehensive infrastructure deal is dead on arrival, but I love some infrastructure plays going forward.

That is not a contradiction. It boils down to the federal government’s inability to provide or attract funding.

Reliance on that funding is all it takes to divide the sector into winners and losers.

Roads, bridges, water, and sewage; they will all fail to find funding. Energy infrastructure, however, has a bright future.

It has everything going for it — a very friendly Senate and president, a reluctant but ultimately supportive House, and funding that doesn’t require politicians to deliver taxpayer money.

Utility-scale renewables, oil and natural gas, and the electrification of automobiles continue to surge because companies see a clear and unhindered path to profitability.

While other forms of infrastructure are hopelessly tied to political patrons, advances in technology are poised to revolutionize how we create, use, and store energy.

Nowhere is that more obvious than energy storage. New battery technologies are pushing beyond what lithium-ion batteries could ever hope to achieve, and they are about to roll out on a massive scale.

They’ll be in cars, homes, and tagged right onto power plants. And they’ll be cheaper than what it costs to run the large burner plants that are fired up to meet cyclical demand surges.

The right infrastructure plays will save consumers money over time and generate profits going forward.

The government wishes it could deliver, but it can’t. Companies like this one can.

Take care,

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Adam English

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Adam's editorial talents and analysis drew the attention of senior editors at Outsider Club, which he joined in mid-2012. While he has acquired years of hands-on experience in the editorial room by working side by side with ex-brokers, options floor traders, and financial advisors, he is acutely aware of the challenges faced by retail investors after starting at the ground floor in the financial publishing field. For more on Adam, check out his editor's page

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